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Wholesale inflation remains unchanged in August, but it's just notional relief

The data released for August showed that Wholesale Price Food index rose to 5.75% in August from 4.54% in July. Food inflation shot up to 7.67% in August from 6.15% a month ago

Rahul Shrivastava   New Delhi     Last Updated: September 16, 2019  | 20:21 IST
Wholesale inflation remains unchanged in August, but it's just notional relief
Wholesale inflation had come in at a 25-month low of 1.08%

Wholesale inflation remained unchanged during the month of August at 1.08%, similar to July. But this brings only a notional relief to the govt battling an economic slowdown.

The "unchanged wholesale inflation" template hides worrisome details. It shows that items of daily mass consumption witnessed a rise in inflation while the manufacturing sector showed zero inflation or even deflation.

Wholesale inflation is the rate of increase in wholesale prices, determined by the Wholesale Price Index (WPI). Wholesale inflation had come in at a 25-month low of 1.08%.

The data released for August showed that Wholesale Price Food index rose to 5.75% in August from 4.54% in July. The index for 'Manufacture of Food Products' group rose by 1.1% to 132.4 (provisional) from 130.9 (provisional) for July 2019. Food inflation shot up to 7.67% in August from 6.15% a month ago.

This was because of a rise in prices of oil and spices (including mixed spices) maida, rapeseed oil, butter, sooji, sugar, sunflower oil, groundnut oil, salt, cottonseed oil, ice cream, wheat flour (atta), powder milk, palm oil, instant coffee, rice, non-basmati, ghee, castor oil, cocoa, chocolate, molasses, manufacture of health supplements, rice bran, sugar confectionery, rice products and soyabean oil.  

This means that the wholesale inflation rose in case of items which are consumed commonly and generally lead to higher spend by a household on daily need items.

Even the index for what the government unofficially terms the 'sin goods' category rose. 'Manufacture of Beverages' group rose by 0.6% to 124.0 (provisional) from 123.2 (provisional) for July due to higher price of spirits, country liquor, rectified spirit, aerated drinks/soft drinks. The lone decline was in the case of the price of beer (1%).

Also Read: Wholesale inflation unchanged in August at 1.08%

The price of other meats, preserved/processed, buffalo meat, fresh/frozen, processed tea and chicken/duck, dressed - fresh/frozen declined. The price of basmati rice, manufacture of processed ready to eat food, gram powder (besan) and manufacture of macaroni, noodles, couscous and similar farinaceous products declined up to 1%. These are commodities which have lower consumption in rural tracts of the country.  

MANUFACTURING SECTOR WOES

On the other hand inflation for manufactured items fell to 0%, signalling lack of pricing power of producers. Deflation in manufacturing products was at 0.3% in July 2019.

The manufacturing products category has a crucial weightage of 64.23% on the WPI, which means its ups and downs have a huge impact on wholesale inflation. A fall shows its declining day. In this segment deflation (negative inflation) was at 0.3 per cent.

In fuel & power, wholesale inflation stood at 0.1% in July. Many manufactured items saw negative inflation or deflation. These include vegetable and animal oils, leather apparel products, paper, rubber, chemicals, steel, basic metals among others.

Also Read: GDP figures were worse than predicted, surprised us, says RBI Governor Shaktikanta Das

Fuel inflation fell into negative territory. This relief is temporary because the disruption in crude oil supply from Saudi Arabia may lead to rise in fuel prices and a corresponding rise in prices of essentials fuel to the transportation cost element.

The auto sector had been worst hit by the slowdown and the index for manufacturing in the segment reflected negative sentiment. The index for 'Manufacture of Motor Vehicles, Trailers and Semi-Trailers' group declined by 0.4% to 113.5 (provisional) from 114.0 (provisional) for July.

The index for 'Manufacture of Textiles' group declined by 0.8% to 118.3 (provisional) from 119.3 (provisional) for July due to lower price of texturised and twisted yarn, weaving & finishing of textiles, cotton yarn, manufacture of other textiles and synthetic yarn.

The index for 'Manufacture of Wearing Apparel' group declined by 0.6% to 136.3 (provisional) from 137.1 (provisional) for the previous month due to lower price of manufacture of wearing apparel (woven), except fur apparel.

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