Demonetisation Keeps A Lid On Wholesale Prices
India’s wholesale price index eases for the third straight month.
Wholesale inflation eased for the third consecutive month, led lower by prices of food articles and minerals.
The Wholesale Price Index rose 3.15 percent in November as against 3.39 percent in October, according to data from the Ministry of Commerce and Industry. Economists polled by Bloomberg had predicted an increase of 3.10 percent.
At current levels, wholesale and retail inflation are running at par, having closed a significant gap that existed between the two inflation measures last year. Retail inflation stood at 3.63 percent in November.
What Led The Decline In WPI?
Inflation in the primary articles category fell to 1.25 percent compared to 3.31 percent the previous month. Within this category, food inflation dropped to 1.54 percent in November from 4.34 percent in October.
Vegetable prices fell sharply at the wholesale level due to the impact of demonetisation which stalled sales and forced producers to cut prices. Vegetable inflation was at -24 percent in November compared to -10 percent in October.
Prices in the fuel and power segment is starting to rise as global oil prices rebound. Inflation for this segment rose to 7.07 percent in November compared to 6.18 percent last month.
Manufacturing, which accounts for 65 percent of the wholesale price index weightage, clocked an inflation rate of 3.2 percent in November compared to 2.67 percent in October.
Retail And Wholesale Inflation Converge
With prices of food items falling in response to a good monsoon and following demonetisation, retail inflation is likely to fall faster than wholesale inflation. Food items make up a larger share of the consumer price index as compared to the wholesale price index.
In November, retail inflation slipped to 3.63 percent compared to 4.2 percent in October. At these levels, retail inflation is the lowest level in nearly two years. On the other hand, wholesale inflation has moved into positive territory since April this year after a 17-month long streak of negative wholesale inflation.
Both measures of inflation are comfortable at current levels with retail inflation well below the Reserve Bank of India’s March 2017 target of 5 percent. While the central bank held rates steady at its December 7 policy meet, most analysts expect a rate cut in the early part of 2017.