Pricier food, fuel push WPI inflation to 39-month high

Source: The Hindu Business Line, Mar 14, 2017

New Delhi: Retail and farm gate prices surged in February as food articles and fuel products became more expensive.Data released on Tuesday revealed that consumer price index (CPI) based inflation rose to a four-month high of 3.65 per cent in February this year as against 3.17 per cent in January. It was, however, much higher at 5.26 per cent in February last year.

Meanwhile, the wholesale price index based inflation, which was also released today, jumped up to a 39-month high of 6.55 per cent in February because of costlier food and fuel items. It was 5.25 per cent in January and had contracted by 0.85 per cent in February 2016. The data, combined with expectation of economic growth of 7.1 per cent this fiscal, may leave little legroom for the central bank to lower policy rates. Waiting for the impact of demonetisation to play out, the Reserve Bank of India had left rates unchanged in its last policy review. The Monetary Policy Committee will now meet on April 5 and 6.

Sugar, cereals costlier

At the retail level, consumer food price index rose to 2.01 per cent from an upwardly revised 0.61 per cent in January 2016 as items such as sugar, fruits and cereals became costlier. But, the index was much higher at 5.3 per cent in February last year.

Retail inflation in vegetables also seems to be on the rise after demonetisation and it contracted by 8.29 per cent in February as against a contraction of 15.62 per cent in January.

But prices of pulses continued to fall and CPI inflation for the commodity dipped by 9.02 per cent last month compared to a contraction of 6.62 per cent in January. With global crude oil prices hardening, retail inflation in fuel and light shot up to 3.9 per cent last month from 3.42 per cent in January. It grew by 4.59 per cent in February last year.

WPI inflation data also pointed to a hardening of fuel prices, and the segment of “fuel and power” shot up by 21.02 per cent in February as against a decline of 7.06 per cent a year ago. Headline inflation in manufactured commodities also rose to 3.66 per cent last month from a contraction of 0.52 per cent in February 2016.

WPI inflation in food articles, however, expanded at a slower pace of 2.69 per cent in February 2017 as against 3.91 per cent a year ago.

Rising trend

Analysts expect prices to rise over the coming months.

“WPI inflation was higher than expected. But retail inflation was largely in line with estimates.

The inflationary trajectory in the near term looks comfortable at about four per cent and pressure could start building in the second half of the year on the back of base effect and a recovery in domestic demand,” said Tushar Arora, Senior Economist, HDFC Bank, adding that as of now, the RBI is likely to maintain the status quo on rates.

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