Wholesale price inflation moderated to a nearly three-and half-year low in October, dragged down by a contraction in manufactured product, fuel and power prices, but the fall was limited by an increase in food prices to near doubledigit levels.
Data released by the commerce and industry ministry on Thursday showed inflation as measured by the wholesale price index eased to 0.2% in October, slower than 0.3% recorded in the previous month and 5.5% in the year earlier period.
Inflation in the manufactured goods segment fell by 0.8% in October, its lowest level since April 2016. The WPI in manufactured goods was 4.6% in the same month a year-ago. Food price inflation shot up to a 63-month high during the month.
“The contra dictionary pattern recorded in previous 2 months indicates the lack of purchasing power of manufacturers. Inflation in this component has seen a decline on a sustained basis since October, 2018,” said Madan Sabnavis, chief economist at Care Ratings. Inflation in the fuel and power group contracted for the fifth straight month and stood at (-8.3%), a 39-month low. This is largely due to soft global crude oil prices.
Divergence between WPI and retail inflation also increased. Data released on Wednesday had shown that consumer price inflation rose to a 16-month high of 4.6% in October, largely led by food and vegetable prices.
“WPI inflation is expected to remain subdued and will be lower than CPI. Upside risks to wholesale food inflation is likely to emanate from post-harvest supply concerns and a low base effect. However, weak prices of manufactured products will help restrict any upward movement in wholesale inflation,” said Sabnavis.
RBI largely looks at the retail inflation for its monetary policy review, although it also takes into account other inflation numbers, while deciding on rates. Economists said they expect the central bank to cut interest rates in December as several other data prints have pointed to a slowing economy.
“Inflation for primary food articles rose to 9.8% in October 2019, driven by an unseasonal spike in vegetable prices, following late withdrawal of the monsoon,”
