WPI inflation eases in April, but monsoon risk looms over prices
May 15 2014 , New Delhi
Unlike WPI inflation, retail inflation as measured by CPI rose more than expected to 8.6 per cent in April from 7.3 per cent in March. Government data on Thursday showed inflation in the food segment, including that of eggs and fish, eased to 8.64 per cent in April, from a high of 9.9 per cent in March.
India Ratings & Research (Ind-Ra) said the downward reversal in the WPI inflation trajectory was a positive, but there could be a spurt in vegetable prices due to below-average monsoon rains because of a possible El Nino weather event.
“The battle against inflation is far from over,” the rating agency said. “Although it is early to say whether inflation will follow the pattern of last year, WPI could again come under pressure. The prediction of El-Nino disrupting the normal monsoons could add to the woes.”
Finance secretary Arvind Mayaram found the April inflation outcome encouraging.
At the moment, it appears we are on track as far as inflation is concerned... (it is) something to smile about,” he told journalists.
HSBC chief economist for India and Asean markets, Leif Lybecker Eskesen, said Reserve Bank of India would not have much to cheer about. “The rise in CPI inflation and steady core inflation reading in both retail and wholesale inflation showcases the lingering inflation problems despite the easing in WPI in April. This will force Reserve Bank to maintain a hawkish stance,” he said.
He said food inflation would likely creep up, as soon as the disinflationary impact from the supply-side normalisation for fruits and vegetables would have run its course.
Industry chamber Ficci said given the recent increase in diesel price and uncertain outlook for monsoon, price movements would have to be watched going ahead. “This will be the single biggest challenge for the new government. We look forward to a comprehensive action plan to tackle the situation,” Ficci said.
Food inflation shows a mix of seasonal and structural factors. Inflation in primary food articles came in at 8.64 per cent in April against 9.90 per cent in March.
The contribution of fruits and vegetables prices to the headline inflation fell to 7.45 per cent in April from 31.4 per cent in September 2013. It had increased to 9.19 per cent in March from 5.2 per cent in February.
“This shows that seasonal factors, as reflected in the prices of fruits and vegetables, could swing the headline inflation in either direction,” Ind-Ra said, adding structural factors including productivity and bottlenecks in the agricultural supply chain need to be addressed.
Icra senior economist Aditi Nayar said the decline in core-WPI notwithstanding, Reserve Bank of India is expected to maintain status quo on the repo rate, with concerns related to the impact of a potentially unfavourable monsoon on the CPI trajectory remaining paramount.
Assocham said the underlying reason for prolonged unabated hyper-inflation “remains that of supply-side constraints and addressing these constraints would perhaps be the biggest challenge for the new government.”