WPI: The effect of metals

Core inflation, which indicates demand-side pressure on prices, has been falling steadily since the second half of 2012-13. In June, the CRISIL Core Inflation Indicator (CCII), an alternative measure of core inflation, stood at a 45-month low. Non-food manufacturing inflation, the Reserve Bank of India's core inflation measure, fell to a 42-month low in June.

The decline in demand-side pressure, as indicated by non-food manufacturing inflation, however, is being overstated due to a sharp fall in metal prices. In June, metal prices were 2.1 per cent lower than in the year-ago period.

While measuring domestic demand-side pressure, metal prices must be excluded, as price movements in metals are largely influenced by the changing global demand. As a result, CCII stood at 3.6 per cent in June (against two per cent non-food manufacturing inflation) and four per cent in May.