WPI Inflation – January
15 February 2012
Inflation slips to two-year low of 6.6% YoY Apurwa Shiva
Wholesale Price Index (WPI) inflation eased YoY to a two-year low of 6.6% in firstname.lastname@example.org
January 2012 from 7.5% in December 2011 because of moderation in the prices of +91-22-3926 8211
Monthly Inflation Update
food items and manufactured products. Food inflation contracted YoY to -0.5%
compared to 0.7% in December 2011, but rose MoM to 0.3% from -3.1% as the
positive harvest season effect waned. Inflation in manufactured products eased to
6.5% in January 2012 from 7.4% in the previous month due to a slight fall in the
prices of textiles and other manufactured products following moderation in global
commodity prices (except crude oil). Meanwhile, November 2011 WPI inflation
figure was revised upwards by 35bps to 9.46% YoY from 9.11%, indicating upward
Food inflation witnessed a significant fall since November 2011 because of a steep
decline in the prices of vegetables and moderation in cereal prices due to increased
supply, while the prices of milk and other protein items were firm. The economic turmoil in
most developed nations weakened global demand which led to a decline in commodity
prices. Moderation in global commodity prices and a marginal appreciation in the rupee
(as compared to December 2011) benefited India’s manufacturing segment by way of
lower import costs. However, even though the prices of most commodities moderated,
soaring prices of crude oil kept inflation in fuel and power and related petroleum products
at a high level. On account of the consistent rise in crude oil prices, upward revision in
petrol prices and deregulation of diesel prices is likely in the near future. YoY moderation
in inflation has strengthened hopes of a cut in interest rates by the Reserve Bank of India
at its next monetary policy review scheduled on 15 March 2012. However, we expect the
central bank to ensure sustainable moderation in core inflation, which is still firm. Food
inflation may again start its northward journey after the harvest season.
Food inflation up sequentially: Within primary articles, food inflation contracted to
-0.5% YoY from 0.7% in December 2011 due to higher base of the previous year.
However the segment exhibited contraction on YoY basis, but the food article index rose
0.3% in January 2012 compared to -3.1% in the previous month as the positive effect of
the harvest season waned. Inflation in milk and protein items soared to 12.2% and 18.6%
in January 2012 as compared to 11.0% and 11.9%, respectively, in the previous month.
Inflation in non-food articles moderated to 0.6% YoY from 1.5% in November 2011, but
the non-food article index grew 2.4% in January 2012 from 1.3% in December 2011 due
to a rise in the prices of oil seeds. Overall primary article inflation stood at 2.3% YoY in
January 2012 as compared to 3.1% in December 2011.
Exhibit 1: YoY growth in WPI and its prime constituents
Primary Food Non-food Fuel & Manufactured
WPI article article article power products
Weight 100.0 20.1 14.3 4.3 14.9 64.9
Jan-11 9.5 18.4 16.7 26.6 11.4 5.3
Dec-11 7.5 3.1 0.7 1.5 14.9 7.4
Jan-12 6.6 2.3 (0.5) 0.6 14.2 6.5
Source: Office of economic advisor
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Exhibit 2: YoY growth in WPI and its prime constituents
Food articles Fuel & power Manufactured products WPI
Source: Office of the economic advisor
Exhibit 2 shows YoY inflation in food articles at -0.5% in January 2012, while inflation in fuel and
manufactured goods witnessed a slight moderation from the previous month.
Fuel and power inflation
Inflation in fuel and power moderated by 70bps to 14.2% in January 2012 from 14.9% in the previous month
due to YoY fall in the prices of mineral oil, while inflation in coal stood at 13.3% compared to 13.2% for the
same period. The consistent rise in inflation in this segment was primarily on account of rising prices of coal,
aviation fuel, furnace oil and naphtha. Except for coal, the prices of rest of the items are market-determined.
Manufacturing segment inflation
Inflation in the manufacturing segment eased to 6.5% in January 2012 from 7.4% in the previous month,
mainly due to moderation in the prices of manufactured food products, textiles, and basic metals. Within the
manufacturing segment, inflation in chemicals moderated to 9.1% in January 2012 from 9.8% in the previous
month, primarily due to a marginal fall in inflation in fertilisers to 15.8% from 16.2% in December 2011.
Inflation in basic metals eased to 12.0% in January 2012 from 13.0% in the previous month following
moderation in global commodity prices. Inflation in plant and machinery and transport services stood at 2.6%
and 3.1% in January 2012 compared to 2.8% and 4.5%, respectively, in the previous month.
Exhibit 3: YoY growth in main manufactured product segments and WPI
Manufactured food Textiles Chemicals
Basic metals, alloys Machinery & machine tools WPI
Source: Office of the economic advisor
Exhibit 3 shows YoY inflation in textiles and manufactured foods moderated, but inflation in chemicals and
basic metals still hovered above 9%.
2 WPI Inflation
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3 WPI Inflation