Visible Moderation in WPI Inflation while Food Inflation Remains High

The headline WPI inflation has remained muted in the current financial year and declined to a three year low of 6.62 per cent in January 2013 backed by moderation in the non food manufacturing sector. Headline WPI inflation decelerated to 7.55 per cent in the first nine months of 2012-13. It had averaged 9.56 per cent in 2010-11 and 8.94 per cent in 2011-2012.

WPI inflation has been declining across commodity groups. Against 72 commodities, accounting for a weight of 13.8 per cent reporting inflation of 20 per cent or above in Q2 of 2011-12, the number declined to 29 commodities with a weight of 5.5 per cent in Q2 of 2012-13.

Relative importance of different commodity groups contributing to this persistent inflation, however, changed over time. The persistently elevated prices for animal products (eggs, meat and fish), the rise in the prices of cereals and vegetables, along with the increase in international prices of fertilizers (non-urea) and the increase in administered prices of diesel have contributed to inflation in differing degrees over time. Unlike last year when the food price inflation was mainly driven by higher protein food items, this year the pressure has been mounting in cereals. On the other hand milk and other protein items have shown decline.

Food inflation comprising primary food articles and manufactures food products at 9.05 per cent in Q3 of 2012-13 was significantly higher than the 5.30 per cent in Q4 of 2011-12. Non-food non-manufacturing inflation did moderate over the current year, but remains high, in the double digits, largely because of higher inflation for oilseeds and the commodities in the group ‘fuel and power’.

Core inflation which corresponds to inflation for non-food manufactured products, and is a central focus for the Reserve Bank of India (RBI), however, continued to show moderation from its peak in Q3 of 2011-12. It has declined from 8.35 per cent in November 2011 to 4.24 per cent in December, 2012. Deceleration in inflation was witnessed across all major segments of manufacturing. However, inflation in machinery and transport equipment has generally remained low Apart from monetary measures taken by the RBI, softening of international and domestic prices of metals, chemicals and textile products also contributed to the moderation in core inflation.