Wednesday, 18 February 2015

Inflation Turns Negative in January: WPI Inflation at (-)0.39%

Wholesale Price Index (WPI) for the month of January, 2015 has turned negative as compared to 0.11% in the previous month. The last time WPI had touched such low level was in June, 2009 when it stood at (-)0.4%. The forecast was for inflation to be around 0.40% for the month of January, 2015. The WPI for the month of November has also been revised to (-)0.17% from 0%.The food inflation however  rose to 8% in the month of January. Food prices were primarily pushed up by vegetables — inflation for vegetables stood at 19.74 per cent in January, compared with -4.78 per cent in December and (-)28.38 per cent in November. Within this category, prices of potatoes rose 2.11 per cent (13.76 per cent in December and 34.16 per cent in November), while onion prices fell 1.90 per cent (-18.54 per cent in December). The fuel and power segment was the biggest contributor to the fall in wholesale prices. In this category, prices declined 10.69 per cent in January, against 7.82 per cent in December and 4.53 per cent in 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.

Consumer Price Index (CPI) rose to 5.19% in the month of January, 2015. With the expected Crude prices hitting an all time low in the International Market and prices of essential food prices remaining in check it seems that RBI is on course with its Short  and Mid term Inflation target. However the rise in CPI is contributed due to higher weightage being given to Food Items, which is more logical in my opinion as reflects the true impact of inflation on Common People. Although the WPI  has deflated but Common people won’t benefit much from it.
Factory output slowed to 1.7% in December. The November, IIP has been revised to 3.9%. IIP (Index of Industrial Output) remains a cause of concern and if things don’t change we will see the pressure in the near future. As the growth needs to be consistent over a period of time to see manufacturing sector reviving itself.

RBI had revised CPI for March, 2015 to 6% and seems to be on course.
RBI wants to ease Consumer Inflation to 4% very soon.

RBI will once again be expected to cut down the repo rates as Corporate Sectors expects steps in the direction for revival of Industry and Economic Growth. 
Manufacturing Sector has been struggling and economy cannot move ahead without it doing well. So Manufacturing Sector will welcome the rate cut as it will beneficial for them.

I strongly believe for growth of Industrial Growth (Index of Industrial Production) apart from rate cuts, we need clear Industrial policies in order to attract investments. Manufacturing sector revival is also very important as we witness slowing down in the Information Technology and related sectors thereby leading to escalation of unemployment issue. 

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