Bucking the three-month long declining trend, wholesale price index (WPI)-based inflation rose 40 basis points (bps) to 0.6 per cent in November 2019. It stood at 0.2 per cent and 0.3 per cent, respectively in the previous two months. It was, however, 3.9 percentage points lower than 4.5 per cent in the corresponding month of the previous year. While all this has been widely reported, here are some interesting insights that you must know:
WPI has been continuously declining since the start of the current financial year. It had declined 310 bps from 3.2 per cent in April to 0.2 per cent in October. With the marginal increase in November, it is now down by 260 bps. This has pulled down the overall rate of inflation to a two-year low on a cumulative basis. The WPI inflation during April to November stood at 1.4 per cent compared to 4.9 per cent during April-November 2019 and 2.9 per cent during April-November 2018. It, however, was below 1 per cent at 0.5 per cent during the first eight months of fiscal year 2016-17.This lower rate of wholesale inflation indicates a slower pace of growth in prices of goods sold in bulk or wholesale as the index captures the changes in price at factory level.
During the month, an uptick in the food article inflation led to marginal increase in the wholesale inflation. Food articles that carry an overall weightage of 15.26 per cent in WPI was at its historic high. It has seen its sharpest rise over the last 60-months. It was contrary to the deflation by -3.2 per cent in the corresponding month a year ago. It has jumped 1.3 percentage points from October 2019.
This has been driven by substantial increase in inflation in vegetables (45.32 per cent), onions (172.3 per cent), fruits (4.32 per cent), wheat (8.02 per cent) and egg, fish and meat (8.15 per cent). The crop damage due to excessive monsoon and supply shortages in the markets led to rising onion prices, which continue to burn a hole in consumers' pocket, but not as deep as the peak witnessed two years ago. Inflation, when it came to onions, was at a record high of 197.1 per cent in December 2017 when the inflation in vegetables was at 56.4 per cent and vegetables and fruits at 34.5 per cent. This was 1.4 percentage points lower than the current inflation of 35.95 per cent in this sub-group.
However, the deflationary trends in the manufactured goods and fuel and power have kept the inflation at a lower level. The inflation in the manufactured goods continued to witness deflation for the third consecutive month at (-) 0.8 per cent, unchanged from a month ago level and lower than the 4.2 per cent in November 2018. It indicated lack of pricing power of the manufacturers, added a CARE Rating note. 10 out of 17 industries within the manufacturing products indicated deflation at the wholesale level. It included textiles (-1.6 per cent), leather and related products (-2.4 per cent), paper and paper products (-4.6 per cent), chemicals and chemical products (-3.63 per cent), rubber and plastic products (-2.03 per cent), basic metals (-9.4 per cent), semi-finished steel (-7.6 per cent) among others. Manufacture of food products (5.05 per cent), vegetables and animal oils and fats (2.23 per cent), cement (5.24 per cent) and other transport equipment (5.63 per cent) are some of the industries that witnessed higher inflation supporting overall manufactured sector. Fuel and power witnessed sustained deflation for the sixth successive month. The inflation in this segment declined by 7.3 per cent as against the 15.5 per cent growth witnessed in November 2018. Subdued global crude oil prices and high base effect have been weighing on this segment.
CARE Ratings expects the WPI inflation to be little lower than 1 per cent during the year mainly on account of deflationary trend in the manufacturing and fuel and power segment. Going ahead, the base effect will fade, which might lead to some uptick in the overall wholesale inflation.