October 20, 2021

The World Stock Markets Tips & Targets, News, Views & Updates

The World Stock Markets Tips & Targets, News, Views & Updates

Some respite: WPI inflation drops to 6-month low in September

Of course, the government recently trimmed import duties on edible oils, which is expected to offer some relief.Of course, the government recently trimmed import duties on edible oils, which is expected to offer some relief.Of course, the government recently trimmed import duties on edible oils, which is expected to offer some relief.

Wholesale price inflation eased to a six-month low of 10.66% in September, in sync with a drop in retail inflation, as price pressure in food slowed down further and the damaging impact of an inconducive base waned a tad.

However, the wholesale price index (WPI) still stayed too high for comfort, as inflation in power and fuel, and manufactured products continued to remain elevated, showed the official data released on Thursday.

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Despite marginal easing, fuel and power inflation stood at 24.81% in September, while manufactured product inflation hit 11.41% (albeit aided by an inconducive base effect). This blunted a drop in the food inflation (both primary and manufactured products) to 1.14% in September from 3.43% in the previous month.

Interestingly, while primary food inflation crashed to (-)4.69% in September, price pressure in manufactured food products hit 12.65%, driven by a 36.85% spurt in vegetable oil inflation. This means famers haven’t quite benefitted from elevated WPI inflation.

Retail inflation, meanwhile, hit a five-month low of 4.35% in September, having remained within the central bank’s target band (2-6%) for a third straight month.

Importantly, core WPI inflation and manufacturing inflation have stayed put at 11.1% and 11.4%, respectively, in September. This is the third successive month in which they have remained in excess of 11%, primarily due to higher input costs that manufacturers are passing on to their output prices, said Sunil Sinha, principal economist at India Ratings.

Since high fuel price pushes up transportation cost, it has a direct and indirect impact on the manufacturing sector. Consequently, seven groups — textiles, paper, chemicals, rubber & plastics, basic metals, fabricated metals and furniture—have witnessed double-digit inflation for four successive months through September, Sinha pointed out.

However, the monetary policy committee is unlikely to sacrifice growth at a time when inflation is being driven up by global supply-side issues. “We remain convinced that monetary policy normalisation will commence only after demand side pressures start dominating inflation,” said Aditi Nayar, chief economist at ICRA.

The latest moderation in WPI inflation, however, “offers a modicum of comfort, given the looming concerns related to coal, crude oil, metals and logistics costs, as well as a depreciating rupee”. After four months of consecutive moderation, the WPI inflation could rise in October and remain in double-digits in the third quarter, Nayar said.

Within the manufactured products category, vegetable oils and basic metals witnessed high price pressure. Despite a moderation for a fourth straight month, WPI inflation in vegetable oils remained as high as 36.85% in September, while basic metals inflation touched 26.71%. Of course, the government recently trimmed import duties on edible oils, which is expected to offer some relief.

In the monetary policy statement earlier this month, the central bank said, the (retail) inflation trajectory is set to edge down during the third quarter, drawing comfort from the recent catch-up in kharif sowing and likely record production. However, the resurgence of edible oils prices in the recent period “is a cause of concern”. Pressures also persist from crude oil prices. “Rising metals and energy prices, acute shortage of key industrial components and high logistics costs are adding to input cost pressures,” it said.

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