Tuesday, 16 December 2014

Inflation Falls Flat: WPI Inflation at 0%

Wholesale Price Index (WPI) for the month of November has gone flat at 0 %    as against 1.77 % in October, 2014. Stable rupee and lower commodity price in the global market has led to the decline as per the Economist. The food price index, fuel and power price index contracted 3.50% and 4.91% in the month of November. Wholesale Inflation takes into account the prices paid by the manufacturers on the goods imported and used as inputs. The main reason behind the WPI going down is lowering of the Crude prices in the International Market and the Dollar/Rupee stability seen over a period of time. The further depletion in prices of Gold is another plus for the economy as it will help in bring down the Current Account Deficit (CAD).

As I had hinted in my post last month that CPI will go down further in month of November and as expected we find that CPI has hit an all time low since it start of CPI computing in January,2012. But the taming of WPI has more to with the downfall of Commodity and Crude prices in the International market then improvement in the domestic setup.

Consumer Price Index (CPI) stood at 4.38% in the month of November. With the expected Crude prices hitting an all time low in the International Market and prices of essential food prices remaining in check it can be expected that CPI may go down further for the month of December.

Industrial Output (IIP) declined by 1.2% for year on year in October. For September, output was revised to 2.8% from provisional estimate of 2.5%. IIP remains a cause of concern and if things don’t change we will see the pressure in the near future.
RBI has revised CPI for March, 2015 to 6% and seems to be on course.
RBI wants to ease Consumer Inflation to 4% very soon.

Retail Inflation in vegetables also eased by 10.9% in November against a decline of 1.45% in October.

RBI will be under pressure from the Industrial Sector for rate cuts. Finance Ministry also is in favor of rate cut so as to attain GDP growth of 6%-6.5% in the next Financial year. But with chances of Food inflation rising after December, the chances are that it will have an impact on overall inflationary rates in the coming months.

I strongly believe for growth of Manufacturing Sector (Index of Industrial Production) more than rate cuts, clear Industrial policies are required with more transparency in order to attract investments.

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