WPI Inflation April 2010 Update

I will try and share more of these updates on industry (see this industry update) and inflation.

WPI index increased from 250.8 in Mar’10 to 253.7 in Apr’10. This implied inflation for Mar’10 at 9.59% (y-o-y), higher than market expectations of 9.5%.  Inflation was higher as market participants expected a lower inflation in manufactured pro.ducts sub-sector (explained below). For the month of Feb’10, the inflation was revised upwards from 9.89% to 10.06%.


Sector wise analysis:

Table 1: WPI Monthly  Inflation at a Glance
  Index Rate of Inflation (YoY in %)
  Mar’10 Apr’10 Mar’10 Apr’10
Primary Articles 283.2 289.7 14.1 13.88
Of which        
Food Articles 284.4 292.4 16.65 16.8
Non-food articles 254.4 256.1 12.77 10.5
Fuel Products 361.8 364.0 12.71 12.55
Manufacturing Products 214.9 216.6 7.13 6.70
WPI Inflation 250.8 253.7 9.9 9.59
Source: Commerce Ministry

 

  • Primary Articles: The index for primary articles increased from 283.2 in Mar’10 to 289.7 in Apr’10. This implies primary articles inflation at 13.88% (y-o-y) in Apr’10. 

    Primary Articles is further divided into two sub- groups: Food Articles and Non-food articles.

  • Food articles: The index for Food Articles increased sharply from 284.4 in Mar’10 to 292.4 in Apr’10. This implies food articles inflation for Apr’10 at 16.8% (y-o-y).

    The index increased due to higher prices of pulses like moong, urad and arhar; food grains like maize, ragi, barley and jowar; meat items like fish and pork; and other items like milk and spices.  However, prices of wheat, masur, tea, eggs and bajra declined.

  • Non-food articles: The index for non-food articles increased from 254.4 in Mar’10 to 256.1 in Apr’10. This implies non- food articles inflation for Mar’10 at 10.5%.

    The index for ‘Non-Food Articles’ increased due to higher prices of oilseeds like castor seed and groundnut seed; raw material like rubber, timber, silk and jute.  However, the prices of oilseeds like linseed rape & mustard seed fodder, niger seed tobacco declined.

  • Fuel Group: The index for Fuel Group Articles increased from 361.8 in Mar’10 to 364.0 in Apr’10. This implies fuel group inflation for Apr’10 at 12.55%. The fuel group index increased because of higher prices of naptha, diesel, aviation turbine fuel, petrol, and LPG.  However, the prices of bitumen declined.
  • Manufactured Products: The index for Manufactured Products has increased from 214.9 in Mar’10 to 216.6 in Apr’10. This implies manufactured products inflation for Mar’10 at 6.70%.

    The Manufactured Products index rose sharply because of rise in prices of non-food manufactured items. Prices of textiles, paper, plastics, chemicals, metals etc also rose. All the 9 sub-sectors of non-food manufacturing inflation registered rise in prices.

    The prices of food products like sugar, sooji, atta etc. The prices of various cooking oils like mustard oil, rice bran oil, imported edible oil, sunflower oil etc also decreased.

Core Inflation (see a primer on the same here)
We had discussed this measure in our previous economic weekly edition. RBI has been focusing on this measure of inflation for its monetary policy actions. In core inflation we exclude food items from Manufactured Products sub-sector.

Core inflation index has risen from 107.4 in Mar’10 to 109.4 in Apr’10. This implies core inflation for Apr’10 at 6.05% higher than 4.72% for Mar’10. Hence, again core inflation has gone up. In manufactured products analysis, we saw that except for food items, prices in all other sub-sectors had increased. This has resulted in core inflation moving higher in Apr’10.

Summing up:

Inflation numbers continue to show high price pressures in the economy. Inflation may have declined compared to March 2010 but as we have shown, index levels have continued to rise. From April 2010 onwards, we will start seeing lower inflation on account of base-effect.  But the index might show growth. Hence, it will be very important to track the actual index movement.

Core inflation analysis shows inflation has become broader based with continued rise in price of manufactured products. This indicates pressures from demand side are continuing to build up. Demand side pressures could be because of the pick up in economic activity.

In its April 2010 Monetary Policy, RBI had given inflation projections for March-end 2011 at 5.5%. RBI’s preferred measure of core inflation indicates sustained pressure on price levels.

There were expectations in the market before IIP and Inflation data that RBI could again increase rates before monetary policy in July. After IIP data was released, some analysts felt as IIP growth was lower than expected, RBI might not increase policy rates. However, our analysis shows IIP growth to be quiet robust with most indices at all time high. On inflation front, the trends again show continued pick up in inflation pressures.

Therefore both inflation and IIP are likely to put pressure on RBI. However with increased global risks, RBI’s monetary policy outlook also becomes highly uncertain. It will be interesting to see the trajectory of IIP and inflation April-2010 onwards.

2 Responses to “WPI Inflation April 2010 Update”

  1. Abhilash Kushwaha Says:

    Seasonally adjusted Inflation has been under 5% since Feb (last page on http://www.mayin.org/cycle.in/GEN/technote_WPI.pdf)

    3 month moving average of WPI – http://www.mayin.org/cycle.in/GEN/wpi_saar.png

  2. Bike Says:

    Bike…

    […]WPI Inflation April 2010 Update « Mostly Economics[…]…

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