Declining fuel rates dragged down Wholesale Price Index (WPI)-based inflation to -0.39 per cent in January, the second month to witness a fall in prices this financial year, though food items remained expensive. In December, inflation stood at 0.11 per cent.
Meanwhile, wholesale inflation for November was re-estimated to -0.17 per cent, an official release showed on Monday.
The fall in wholesale prices in January was the steepest in five and a half years (in June 2009, WPI inflation stood at -0.39 per cent). In January 2014, it was 5.11 per cent.
Data released last week showed Consumer Price Index (CPI)-based inflation rose to 5.11 per cent in January from 4.28 per cent in December. The base year for the CPI was revised from 2011 to 2012. Also, the weights of various items in the index were changed on the basis of the 2011-12 consumption expenditure survey, against 2004-05 earlier.
The government is also in the process of changing the WPI base year from 2004-05.
Though it might appear that the two sets of data might be sending contradictory indications, this has largely to do with the fact that food items carry more weight in the CPI. Primary food items (those not processed) hold 14.34 per cent weight in the WPI, while processed food articles account for another 9.97 per cent. On the other hand, food items have 45.86 per cent weight in the CPI, against 47.58 per cent earlier.
It is the movement in CPI that the Reserve Bank of India (RBI) tracks to decide on its monetary policy stance. RBI has set a target to restrict CPI inflation at eight per cent in January 2015 and six per cent by January 2016.
While, there was deflation in terms of WPI in January, food inflation rose from 0.66 per cent in November and 5.20 per cent in December to eight per cent in January. Food prices were primarily pushed up by vegetables — inflation for vegetables stood at 19.74 per cent in January, compared with -4.78 per cent in December and -28.38 per cent in November. Within this category, prices of potatoes rose 2.11 per cent (13.76 per cent in December and 34.16 per cent in November), while onion prices fell 1.90 per cent (-18.54 per cent in December).
For pulses, inflation was 12.34 per cent, against 5.88 per cent in December and 4.43 per cent in November. Inflation for fruit was 17.19 per cent in January, compared with 17.87 per cent in December. Milk prices rose 9.13 per cent, against 9.72 per cent in December.
Madan Sabnavis, chief economist of CARE Ratings, said, “The possibility of a lower rabi harvest cannot be ruled out this time. However, the impact on WPI inflation might not be very sharp, given some numbers are in the negative zone.” Pulses, coarse cereals and oilseeds could witness some pressure points. “We need to be watchful; RBI will be looking closely at these trends,” he said.
Within primary articles (not processed), prices of non-food items declined 4.07 per cent in January, against 3.06 per cent in December and 3.65 per cent in November. Fibre prices fell 19.43 per cent.
The fuel and power segment was the biggest contributor to the fall in wholesale prices. In this category, prices declined 10.69 per cent in January, against 7.82 per cent in December and 4.53 per cent in November. Petrol turned cheaper by 17.08 per cent, against 11.96 per cent in December and 9.55 per cent in November, while diesel prices fell 10.41 per cent, against 6.31 per cent in December and 1.93 per cent in November.
Prices of cooking gas fell 7.65 per cent, against 3.19 per cent in December and a rise of 0.12 per cent in November.
Inflation for manufactured products declined to 1.05 per cent from 1.57 per cent in December and 1.9 per cent in November. However, food prices rose in this category — to 1.84 per cent from 1.71 per cent in December and 1.58 per cent in November.
CPI-based inflation stands at 5.11 per cent in Jan 2015 against 4.28 per cent in Dec 2014
CPI revised with the new base year of 2012 instead of 2010. Similarly, weights in CPI also revised on the basis of consumption expenditure survey of 2011-12 against 2004-05
WPI is also in the process of revision, but currently the base year remains 2004-05
- Though it is deflation at the level of headline WPI number, food inflation rose in January. Vegetable inflation is above 19 per cent