Twitter
Advertisement

Food, fuel prices lift WPI inflation in Nov

Economists expect inflation to cool off in coming months on correction in food prices, only to rise again as growth picks up

Latest News
article-main
FacebookTwitterWhatsappLinkedin

After a 15-month high consumer price index (CPI) inflation of 4.88% in November, the wholesale price index (WPI) inflation for the same month also came elevated at 3.93%, up from 3.59% a month before and 1.82% a year ago.

The inflation data released by commerce ministry on Thursday showed that similar to retail inflation, WPI inflation also surged last month due to massive jump of 59.8% in vegetable prices with onion prices skyrocketing 178.19%. Vegetable prices were already elevated as they had shot up 36.61% in October.

Food article inflation last month rose to 6.06% compared with 4.3% in the month before. Another component that pushed up the WPI inflation in November was oil prices. The fuel price index rose 8.8% last month.

Inflation in manufactured goods last month was almost stagnant at 2.61% against 2.62% a month ago.

The higher than expected inflation numbers and a subdued factory output of 2.2% in October compared with 4% in September belie the green shoots of economic recovery that seemed to be appearing. However, many economists do not expect rise in food inflation to last very long and see it as "circumstantial spike". At the same, they do not expect it to go back to the sub-3.5% range.

"Part of the increase in prices is because of the unseasonal rains, causing damage to the crop, and therefore there has been a circumstantial spike, it appears, in the food and vegetable basket. The expectation is that this inflation rate will come down going forward but we will still not see it go back to the range of sub-3.5% inflation," said Richa Gupta, senior director and senior economist at Deloitte India.

Aditi Nayar, principal economist of credit rating firm Icra, expects some easing of inflation to start from next month as vegetable prices begin to fall but expects it to remain elevated next year as economic growth picks up.

According to her, pass through of the recent goods and services tax (GST) rate cut will begin reflecting in the inflation in a month or so.

"Inflation definitely has gone up more than expected but some of them (articles) will come down, like vegetable prices, which should start easing by December or January. Fuel will continue to remain elevated and HRA would continue to push up. GST rate cuts passed through may also see CPI inflation begin easing in the next month or so," she said

Nayar expects CPI inflation for the remainder of FY18 CPI inflation to be in the range of 4% to 4.7% while WPI inflation go up and then come down in the fourth quarter of the current fiscal. For the whole fiscal, her outlook for CPI inflation is 3.5%, below the Reserve Bank of India's (RBI) target of 4% and 3.1% for WPI inflation.

Gupta of Deloitte is predicting retail inflation for FY18 at a little below 4%; "We will be within that 4%-plus-minus-2% monetary policy range but we might be a little less than what RBI is targeting but still it wouldn't be enough to give comfort to the RBI to cut policy rate".

She expects CPI inflation to zoom to beyond 4% in in the next fiscal as growth picks up.

"If it does so, then we have to see how steep the rise would be and what measures are taken (to douse it)," said Gupta.

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement