Food inflation pushes up WPI inflation to 3.5%

Source: Business Standard, Aug 17, 2016

Wholesale Price Index (WPI) jumped up to 3.5 per cent in July, the highest since August 2014. This was led by higher food inflation, especially in pulses, fruits, vegetables, tea, egg, meat and fish. Fuel inflation continued to fall while core inflation as measured by the CRISIL Core Inflation Indicator (CCII) rose to 2.8 per cent.

Food inflation (primary plus manufactured food) rose to 11.3 per cent from 8.23 per cent in June, due to a rise in both primary and manufactured food inflation. Primary food inflation increased to 11.8 per cent from 8.2 per cent, led by higher inflation in pulses, vegetables, fruits, tea, egg, meat and fish.

Inflation in processed food (food products), which has been rising since September 2015, rose to 10.2 per cent from 8.4 per cent in June on the back of a rise in sugar inflation.

In the fuel and power category, prices fell at a slower rate, as inflation stood at -1 per cent, compared to -3.6 per cent in June.

This was led by rise in prices of coal and high speed diesel. For the past few months, an interesting phenomenon had emerged in the two core inflation measures.

Not only were the two measures showing a divergent trend but the CCII measure also turned positive since December while the non-food manufacturing inflation measure remained negative. In July, the non-food manufacturing inflation measure stood at 0.1 per cent – turning positive for the first time since February 2015 – while CCII inflation, after entering the positive zone in December, was at 2.8 per cent. The larger pickup in CCII has been mainly led by a rise in inflation in processed food products (18 per cent weight in this index), beverages, tobacco & tobacco products. The CCII offers a better perspective on core inflation, as it negates the effect of volatile categories. It excludes base metals, as their prices are mostly determined by global demand-supply dynamics and volatility in exchange rates, rather than just domestic conditions.

This exclusion causes a variance between CCII and non-food manufacturing inflation. Basic metals prices continued to fall in July, with inflation in ferrous metals at -4.8 per cent, compared to -4.9 per cent in June. As a result, non-food manufacturing inflation remained much lower than the CCII in July.

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