WPI inflation falls to 3-yr low

Wholesale price index (WPI)-based inflation fell to 6.62 per cent in January, the lowest since December 2009, even as surging onion prices saw food inflation soaring to 11.88 per cent, according to data released by the Ministry of Commerce and Industry on Thursday. January was the fourth consecutive month when WPI inflation fell. In December 2012, it stood at 7.18 per cent, while food inflation was 11.16 per cent.

Onion prices rose 111.52 per cent in January, against 69.24 per cent in December.

As food items have a weight of about 50 per cent in the consumer price index (CPI), against about 20 per cent in WPI, divergence between the two indices widened further in January. Analysts said it was difficult to decide which barometer should be used to ascertain price pressures.

CPI-based inflation had risen from 10.56 per cent in December to 10.79 per cent in January, data provided by the Ministry of Statistics and Programme Implementation showed.

After nearly converging in January 2012 (when WPI inflation was 7.23 per cent and CPI inflation 7.65 per cent), now, there is a difference of about four percentage points in the indices.

Soumyakanti Ghosh, chief economist, Federation of Indian Chambers of Commerce and Industry, said the gap between the indices was widening because of different weights of food items in the two indices. “Food prices were not that high in January 2012. But prices have gone up significantly in the last one year,” he said.

Last month, WPI-based food inflation was 11.88, while according to CPI, it stood at 13.36 per cent. In January 2012, WPI-based food price inflation was 6.55 per cent; according to CPI, it was 4.11 per cent.

Prime Minister’s Economic Advisory Council Chairman, C Rangarajan, said inflation would decline to 6.5 per cent by March-end. “Retail inflation is still high. WPI inflation in primary and food articles is still high. Efforts should be made to release larger stocks of food articles into the market,” he said. (Click here for chatrs & tables)

Arun Singh, senior economist at Dun & Bradstreet, said the fall in WPI inflation was a signal to the Reserve Bank of India (RBI) to cut interest rates in March. “Food inflation is in double digits in both the indices. CPI inflation is high, largely because inflation in primary items is higher. This is basically a structural issue. In manufacturing goods, which indicate demand-driven price pressures, inflation is lower than five per cent.”

In its January 29 policy review, RBI had cut policy rates, after WPI inflation declined. RBI’s inflation projection for the current financial year is 6.8 per cent.

As the government raised diesel prices in January, inflation for the fuel rose to 15.02 per cent, against 14.60 per cent in December. For fuel and power, which have a weight of 14.91 per cent in the index, inflation stood at 7.08 per cent, compared with 9.38 per cent in December.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “Inflation is still above the comfort level. It should come down further.”

Petrol prices rose seven per cent, while light diesel oil became seven per cent cheaper.

For manufactured products, which have a weight of 64.97 per cent, inflation fell to 4.81 per cent in January from 5.04 per cent in December, explaining why overall WPI inflation fell last month.

WPI inflation in the April-January period stood at 5.09 per cent; for the corresponding period of the previous financial year, it was 6.15 per cent.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “Inflation is still above the comfort level. It should come down further.”

Aditi Nayar, senior economist, Icra, said the moderation in inflation and the weak industrial performance in January would increase the likelihood of monetary policy easing in the next mid-quarterly policy review. “The initial data for headline inflation for January 2013 was lower than our expectations (7.1 per cent), which had factored in a sharper revision in the sub-index for diesel, reflecting the upward revision in retail and bulk diesel prices. It is likely inflation for January may subsequently be revised upwards.” she said.