Wholesale prices contract 2.33% in March

This is the fifth consecutive month of deflation in wholesale prices

Wholesale Price Index  (WPI)-based inflation provisionally stood at minus 2.33 per cent for March, government data showed on Wednesday. This compares with minus 2.06 per cent for February and six per cent for the same period last year.

This is the fifth month of disinflation in wholesale prices, a clear reflection of lower commodity prices. The fall was greater than anticipated, as analysts polled by Reuters expected inflation for the month to be down 1.95 per cent.

“The numbers are more or less on expected lines. Everyone has been talking about the crop damage due to unseasonal rain and its impact on food prices. But we haven’t seen that fully reflected in CPI (Consumer Price Index) or WPI inflation yet,” said Madan Sabnavis, chief economist with CARE Ratings.

WPI for primary articles, 20 per cent of the index and including food items, remained flat. Manufactured products, 65 per cent of the index, fell marginally at minus 0.19 per cent compared to the same period last year. Fuel and power prices dropped 12.6 per cent year-on-year.

On Monday, data showed CPI inflation for March eased to 5.17 per cent, the lowest in three months, aided by lower food prices in spite of crop damage due to unseasonal rain.

“WPI in the next few months is expected to continue this way. Any increase in food prices is expected to be offset by contraction in manufactured goods and fuel & power because of the weight of the latter two items,” Sabnavis said.

The WPI data is expected to have only limited impact on Reserve Bank of India (RBI) Governor Raghuram Rajan’s policy on rates.

In its Global Financial Stability report on Wednesday, the International Monetary Fund said some economies were benefiting substantially from lower oil prices and increased monetary policy space. “India and South Africa, for example, are expected to have inflation decelerate to their target bands by the end of 2015.” The RBI has targeted CPI-based inflation to be at six per cent by January, 2016.

After the CPI inflation data, economists had said Rajan might not cut rates at the central bank’s next policy meeting, scheduled for June. An out-of-cycle cut before that was also unlikely, they added.

Last week, Rajan held rates at a scheduled review, waiting for banks to transmit two previous out-of-turn cuts to customers. He said his next move would depend on data related to inflation. According to the monetary policy framework, the central bank has set a target of restricting this to less than six per cent by January 2016. "With the central bank likely to place far greater emphasis on the unfolding trajectory and average level of CPI inflation than the path charted by the WPI, which would be influenced to a larger extent by evolving trends in global commodity prices, we continue to expect repo rate (at which RBI lends to banks) cuts to be limited to 50 basis points in the remainder of this calendar year," said Aditi Nayar, senior economist at ICRA, in reaction to the WPI numbers.
 

WPI Inflation in % year-on-year | Create infographics