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Producers’ inflation breached the 5 per cent mark in September mainly due to rise in primary food and non-food items and minerals. There are apprehensions that this may go up further due to higher minimum support price, surge in fuel prices, and weak currency.
Unlike retail inflation as indicated by the Consumer Price Index (CPI), producers’ inflation, represented by Wholesale Price Index (WPI), does not enjoy much importance now.
However, this reflects demands in the economy, which, in turn, indicates the growth scenario. CPI for the month of September inched up a bit to 3.77 per cent in September as against 3.69 per cent in August.
According to data released by the Commerce and Industry Ministry, the annual rate of inflation, based on monthly WPI, stood at 5.13 per cent for the month of September, compared to 4.53 per cent in August and 3.14 per cent during September 2017. Build up inflation rate in the financial year so far was 3.87 per cent compared to a build up rate of 1.50 per cent in the corresponding period of the previous year.
Experts observed that sequentially, out of three major groups, primary articles inflation increased sharply in September and fuel and light, and manufactured inflation moderated in September. Non-food manufacturing growth moderated consecutively in the second month; even in CPI inflation the same trend was observed. However, it has remained more than 4 per cent in the last five months. The divergence in the extent of the uptick displayed by the WPI and the CPI inflation prints for September reflects the underlying difference in the composition of these two indices, with a smaller weight of food items and a larger weight of globally traded commodities in the WPI than the retail basket.
According to Devendra Kumar Pant, Chief Economist at India Ratings, the latest data suggests though the demand conditions in the economy have remained strong, the pace of demand growth is gradually declining. The prevailing market price for most kharif crops at major mandis has remained lower than the MSP, suggesting procurement hasn’t picked up.
“The future inflation trajectory would depend on the response of mandi prices with respect of new MSP, and the movement of crude oil price and value of currency,” he said.
Weaker rupee
Aditi Nayar, Principal Economist at ICRA, said while crude oil prices have cooled in the recent sessions, and the excise duty and VAT cuts would provide some relief for fuel prices, the weaker rupee would continue to push up the WPI inflation in the ongoing month.
This remains a crucial risk for the CPI inflation trajectory as well. Moreover, “the sharp narrowing in the disinflation for primary food items, led by cereals, fruits, vegetables, condiments and spices, and tea, may be a precursor to a rise in the retail food inflation in the ongoing month,” she said.
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