Wholesale inflation falls to 2.6% in September

Macroeconomic numbers show uptick; economists wait for trend to emerge

The Wholesale Price Index (WPI)-based inflation data released on Monday provided yet another indicator of improving macroeconomic parameters.
 
Wholesale inflation fell to 2.60 per cent in September from 3.24 per cent in August due to a subdued rate of price rise in food items, particularly vegetables. However, economists warned that data of a few more months would have to be analysed to come to any conclusion on macroeconomic improvement.
 
Though food inflation declined to 2.04 per cent, against 5.75 per cent in August, the rate of price rise in onions was elevated. Despite moderation, inflation in onions stood at 79.78 per cent against 88.46 per cent. Otherwise, inflation in vegetable prices cooled to 15.48 per cent in September, against a high of 44.91 per cent in the previous month.
 
Inflation in manufactured products witnessed a slight increase at 2.72 per cent, against 2.45 per cent in August.
 
Fuel and power inflation cooled to 9.01 per cent, against 9.99 per cent in August.
 

Aditi Nayar, principal economist with ICRA, said a favourable base effect aided moderation in inflation on fuel and power, despite the recent rise in prices of petrol, diesel, aviation turbine fuel and other fuels. “Initial data has placed the index for crude petroleum at 55.6 points for September 2017, only 1 per cent higher than the level for June 2017, despite the 17 per cent increase in the average price of the Indian crude oil basket in the rupee terms during this time period. There is a possibility that inflation for September 2017 would subsequently be revised higher on account of crude oil," she said.
 
The inflation number would provide a boost to those claiming macroeconomic numbers were on the upswing now.
  
Industrial production grew at a nine-month high of over 4 per cent in August, mainly on account of robust performance of mining and power sectors, coupled with higher capital goods output. Exports rose to over 25 per cent in September, the second consecutive month of double-digit rise. Retail inflation remained at 3.28 per cent in September, unchanged from August, even as vegetable and cereal prices softened. 

All these data came after gross domestic product growth declined to a three-year low of 5.7 per cent in the first quarter of FY'18, reflecting a major slowdown in the economy due to lingering impact of demonetisation and pre-GST jitters. 
Nayar, however, cautioned against over-interpreting these numbers. "The recent set of macroeconomic data indicates some improvement. However, we need to watch whether this sustains over the next few months. One month's data may not provide a clear picture regarding the future trend.”

To buttress her point, she said the year-on-year pace of growth of electricity generation, Coal India's production and automobile production had declined in September. This could dampen the rise in September industrial production to some extent, she added.

Madan Sabnavis, chief economist with CARE Ratings, said," while there are inherent pressures which can push up this rate, we expect it to be within the range of 3-3.5% by the end of the year, which is definitely not going be a concern."
 In fact any upside in this number for manufactured products would be good news for this sector as it would imply regaining pricing power, he said.
 
Earlier this month, the Reserve Bank kept benchmark interest rate unchanged on fears of rising inflation, while lowering growth forecast to 6.7 per cent for the current fiscal year. It also raised its retail inflation forecast to 4.2 to 4.6 per cent for the rest of the current fiscal year, from 4 to 4.5 per cent.