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Base effect, lower food prices ease India’s August wholesale inflation

wholesale price index (WPI)New Delhi : Base effect along with a fall in cost of food and primary articles eased India’s annual inflation rate based on wholesale prices to 4.53 per cent in August from a 5.09 per cent rise in July.

However, on a year-on-year (YoY) basis, the Wholesale Price Index (WPI) furnished by the Ministry of Commerce and Industry on Friday was still higher than 3.24 per cent reported for the corresponding period of 2017.

“Build up inflation rate in the financial year so far was 3.18 per cent compared to a build up rate of 1.41 per cent in the corresponding period of the previous year,” the Ministry statement said here.

On a sequential basis, the expenses on primary articles, which constitute 22.62 per cent of the WPI’s total weightage, slipped by (-) 0.15 per cent, from an increase of 1.73 per cent in July.

Similarly, the prices of food articles dipped. The category has a weightage of 15.26 per cent in the WPI index. It deflated by (-) 4.04 per cent from a rise of (-) 2.16 per cent.

Interestingly, the cost of fuel and power category, which commands a 13.15 per cent weightage, increased at a slower pace of 17.73 per cent from a growth of 18.10 per cent.

However, expenses on manufactured products registered a rise of 4.43 per cent from 4.26 per cent.

On a year-on-year (YoY) basis, onion prices decined by (-) 26.80 per cent whereas potatoes became dearer by 71.89 per cent.

In contrast, the overall vegetable prices in August declined by (-)20.18 per cent, against a rise of 44.84 per cent in the same month a year ago.

Further, the data revealed that wheat became dearer by 8.39 per cent on a YoY basis while prices of pulses came down by (-) 14.26 per cent, though paddy became expensive by 4.78 per cent.

The prices of protein-based food items such as eggs, meat and fish went up marginally by 0.59 per cent.

Fuel-wise, the price of high-speed diesel rose by 19.90 per cent on a YoY basis, petrol by 16.30 per cent and LPG by 46.80 per cent.

On Wednesday, data furnished by the Central Statistics Office (CSO) showed that a decline in food prices had eased India’s August retail inflation to 3.69 per cent from 4.17 per cent in July.

“The decline in the WPI inflation in August 2018 was largely in line with forecasts, driven primarily by the deepening disinflation in food items, particularly perishables like vegetables and fruits, as well as some easing in the inflation for primary non food articles, minerals and fuels,” said Aditi Nayar, Principal Economist, ICRA.

“However, core inflation hardened to a series high 5 per cent in August 2018 from 4.8 per cent in July 2018, a signal that firms with pricing power are beginning to transmit the weaker rupee and rising costs associated with industrial inputs such as fuels, to final prices.”

According to Devendra Kumar Pant, Chief Economist, India Ratings and Research: “Despite high inflation in crude petroleum, and fuel and power inflation, strong base effect, continued deflation in food articles resulted in sequential decline in WPI inflation.”

“The core inflation in August 2018 at 5 per cent suggests strong demand conditions in the economy. August 2018 core inflation is highest in 2011-12 base series. Apart from strong demand conditions, weak currency is also playing its role.”


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