Jan WPI inflation eases to eight-month low of 5.05% on lower food inflation

In other good news, after Retail inflation numbers India's main inflation gauge, based on monthly WPI, too eased to eight month low at 5.05% in January as compared to 6.16% in December and 7.31% during the corresponding month of the previous. The build up inflation rate in the financial year, so far, stood at 5.17% compared to a build up rate of 5.78% in the corresponding period of the previous year. However, the reading for November WPI inflation was unchanged at 7.52%.

The decline in headline inflation figure was on account of ease in food articles, which declined by 2.7 percent to 233.6 (provisional) from 240.1 (provisional) for the previous month that dragged Primary article index, which occupies 20.12% weight in the overall headline index, lower by 1.9 percent to 238.9 (provisional) from 243.6 (provisional) for the previous month. Meanwhile, the index for ‘Non-Food Articles’  group rose by 0.1 percent to 216.0 (provisional) from 215.8 (provisional) for the previous month.

Further, Fuel & Power, having weight of 14.91%, too rose by 0.7 percent to 212.8 (provisional) from 211.3 (provisional) for the previous month due to higher price of LPG (5%), aviation turbine fuel and petrol (2% each) and furnace oil, kerosene, high speed diesel and bitumen (1% each).

However, the index of Manufactured Products, which occupies 64.97% of weight in the overall index, rose by 0.5 percent to 152.6 (provisional) from 151.9 (provisional) for the previous month, which took the inflation of manufacture products at three months high level.

However, in a sign of worry, Core WPI, edged higher at 3% as compared to 2.8% (M-o-M basis). Nevertheless, eight months low January WPI, besides bringing some relief to RBI would bring some cheer to Congress party-led ruling alliance, which faces an uphill battle in a general election due by May. Notably, the government in its Mid-Year review terming high inflation as biggest risk to India’s growth outlook, pressed the need for bringing down the headline inflation below 6%.

Thus, the latest reading makes a case for RBI maintaining a status quo stance in its upcoming monetary policy review on April 1, 2014. Persistently high inflation prompted RBI Governor Raghuram Rajan to raise interest rates last month, the third hike since September, even though economic growth has been stuck around a decade-low of 4.5 percent for four quarters.