WPI at 5-month low, but not in tune with CPI
Aug 15 2014 , New Delhi
This piquancy has risen as wholesale inflation eased in July, two days after retail inflation showed a rise for the same month reinforcing the fears that the current levels of inflation were largely food and retail driven.
Government data on Thursday showed that WPI inflation fell to a five month low at 5.19 per cent due to moderation in fuel prices. Though vegetable and fruit prices increased, it was not pronounced as in case of retail CPI inflation, which rose to 7.96 per cent for July.
As it is, there is a three-percentage points difference between wholesale and retail inflation indicating a big difference in prices at retail level. With retail food inflation growing more rapidly than wholesale food inflation, it indicated more hardship for consumers.
The divergence in vegetable inflation (July WPI: -1.3 per cent, CPI:16.9 per cent) is the cause of the opposite movement in the two measures of inflation. This points towards the adverse role played by intermediaries in driving retail prices up, an independent ratings agency, India Ratings said.
WPI-based inflation declined to 5.2 per cent in July from 5.4 per cent in June. Inflation in primary food articles came in at 8.4 per cent in July 2014 (June 2014: 8.1 per cent) mainly due to a rise in fruit and vegetable prices. In contrast retail CPI inflation rose close to 8 per cent in July as against 7.46 per cent in June.
Deloitte chief economist Anis Chakravarty had a slightly different
take on this situation saying the decline in WPI has largely been due
to the moderation in fuel prices also supported by marginal decline in
the prices of primary articles.
“Undoubtedly, the fact that core inflation is lower is reassuring but
we can see that the food prices are still above the comfort level. As
has been the experience, the movement in food prices continues to be
dependent on whether a normalised monsoon will materialise in time to
take effect,” he said.
The wholesale inflation on manufactured products has increased from
3.61 per cent to 3.6 per cent in July.
The WPI basket of food articles suggests that seasonal factors have
been swinging food inflation in either direction lately, even while
inflation in food items driven by structural factors has remained
In July, while fruits prices rose 31.2 per cent year-on-year as
compared to 21.4 per cent in June, for the same period vegetable
prices declined only 1.3 per cent as compared to a decline of 5.9 per
cent in the previous month.
Among the food items driven by structural factors, the price of rice,
milk and poultry products witnessed a decline.
This is indeed a welcome change Indian Ratings said, adding more
sustained policy effort would however be required to convert this into
Poor rains in some parts of the country have pressured food prices and
vegetable prices, for example, are up 68 per cent since March. The
central bank wants to reduce retail inflation to 6 per cent by 2016.
It held rates unchanged last week, in a policy review that cited the
risk that inflation could increase due to the weak start to the
Rains improved last month, and there are forecasts for a stronger
second half to the four-month monsoon season running from June through
India though world's second largest producer of fruit and vegetables
after China, has huge storage problem resulting wastage of the
perishables up to 40 per cent. There are fears that losses could be up
to Rs 40,000 crore annually.
Inflation in the overall food articles basket, which accounts for 14
per cent of the total WPI, stood at 8.43 per cent. In June, it stood
at 8.14 per cent. However, inflation in vegetables as a group declined
1.27 per cent. Onion prices fell by 8.13 per cent, year-on-year, in
July. Potato prices, on the other hand, shot up 46.41 per cent and
fruits by 31.71 per cent. The rate of price rise in milk was at 10.46
per cent. Inflation for the eggs, meat and fish category stood at 2.71
per cent in July as against 10.27 per cent in the previous month.
"While risks on account of monsoon and volatility in crude oil prices
have receded for the time being, some degree of ambiguity remains.
Inflation continues to be a concern as prices of food articles are
still elevated. Also, the retail inflation data released earlier this
week had inched up once again at the back of high food prices. In the
current situation, it is amply clear that Reserve Bank will maintain a
watchful stance going ahead. However, we hope that due focus will be
given on the implementation of measures announced by the government to
tame food prices. Also, it needs to be assured that the industrial
growth is not stifled and recent momentum seen in IIP numbers is kept
pace with,” Ficci president Sidhartha Birla said.
The area of concern is a vast difference between WPI and CPI, which is
close to three percentage points. It also reflects the operational
inefficiencies in the supply chain, Yes Bank chairman Rana Kapoor, who
is also assocham president, said.