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Wholesale inflation hits 3 year low in October

High food inflation, however, kept the Wholesale Price Index (WPI) from falling into negative zone. Food inflation increased to 9.8% in October from 7.47% in the previous month.

ET Bureau|
Updated: Nov 14, 2019, 11.39 PM IST
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New Delhi: India’s wholesale inflation eased to 0.16% in October, its lowest in more than three years, on the back of a fall in prices of fuel and manufactured goods. Inflation for manufactured items stood at -0.84% in October, against -0.42% in September, while that for fuel and power stood at -8.27% last month against -7.05% in September, data released by the commerce and industry ministry on Thursday showed. WPI was up 0.33% in September.

High food inflation, however, kept the Wholesale Price Index (WPI) from falling into negative zone. Food inflation increased to 9.8% in October from 7.47% in the previous month. Onion prices soared 119.8% in the month, slightly lower than 122.4% inflation in September. “This trend of food inflation going up and that in manufactured products falling will continue for some more time,” said Madan Sabnavis, chief economist at CARE Ratings. This will lead to lower wholesale price inflation and higher consumer price inflation, he said. “We don’t expect the trend to change anytime soon but a reversal is likely January onwards.”

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Retail inflation had accelerated to a 16-month high in October, breaching the Reserve Bank of India's medium-term target of 4% for the first time since July 2018, due to rising food prices, data released by the statistics office on Wednesday showed. The WPI inflation for primary articles was 6.41% in October against 5.54% in September while WPI Core inflation for October was -1.6% versus -1.1% in September, reflecting further softening of commodity prices.

“The fall in the WPI inflation in October 2019 was narrower than we expected,” said Aditi Nayar, principal economist at ratings agency ICRA. “The further deepening of the disinflation of core WPI items is along expected lines, underscoring the subdued demand conditions in the economy, and supporting the case for further monetary easing in December 2019,” she said.

WIDENING GAP
With retail inflation firming up and wholesale inflation easing, economists said RBI policymakers are facing a complicated situation as they consider the course of monetary policy, especially when India’s growth is slowing. The central bank has been on a policy rate cut spree, having already cut the repo rate five times in 2019, to help revive demand and investment. But high food prices may reduce its room for further easing up. The gap between CPI and WPI will remain as long as commodity prices are weak and the central bank may have to revise its retail inflation forecast, economists said.

WPI is dominated by manufactured items with 64.23% weight, followed by primary articles with 22.62% weight. In the case of CPI, food and beverages have the highest weight of 54.18% followed by services at 27.26%. “Food inflation will remain higher, therefore WPI may not become negative. Food inflation will not reduce anytime soon,” Nayar said. In fact, high food prices may keep WPI from becoming negative, she said.


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