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Food and fuel prices spur acceleration in inflation

TH15BUFOODIECPI inflation quickens to 3.65%, WPI-based figure hits 39-month high of 6.55%

Retail and wholesale price inflation accelerated in February, spurred by food and fuel prices, vindicating the Reserve Bank of India’s decision to change its monetary stance to “neutral” amid concerns about the “persistence” of price gains in categories excluding food and fuel.

While retail inflation as measured by the Consumer Price Index (CPI) quickened to 3.65%, from January’s 3.2%, according to data from the Ministry of Statistics and Programme Implementation, wholesale price inflation accelerated sharply to a 39-month high of 6.55%, a separate release from the Ministry of Commerce and Industry showed. In comparison, the Wholesale Price Index (WPI) based reading was 5.25% in January.

Perishable food prices

“In our view, CPI inflation troughed in January (at 3.2% y-o-y) and will start rising due to higher perishable food prices, a gradual narrowing of the output gap, higher minimum support prices and the recent uptick in rural wages,” Nomura economist Sonal Varma wrote in a report.

The RBI, which is aiming at CPI inflation of 5% by March-end with a mandate to achieve a medium-term target of 4% plus/minus 2%, last month cautioned that vegetable prices may “potentially rebound” as the deflationary effects of demonetisation wear off. The central bank said at the time that “a broad-based stickiness is discernible in inflation,” particularly in housing, health, education, and miscellaneous goods and services consumed by households.

Tuesday’s data showed inflation in the housing segment of the CPI quickened marginally to 5.02% in February from 4.98% in January. Inflation in the food and beverages category of the CPI was at 2.5% in February, quickening from 1.3% in January.

Similarly, retail inflation in the fuel and lighting category accelerated to 3.9%, from 3.4% in the preceding month.

“On the policy front, we expect the RBI to leave rates unchanged throughout 2017,” Nomura’s Varma added.

Primary articles inflation in the WPI accelerated to 5% in February, from 1.3% in January. Within this, inflation in the food articles segment sped to 2.7%, from a contraction of 0.56% in January. Non-food articles inflation was at 6.5% in February, compared with 2% in January. The minerals segment saw the third month of rapid inflation, with the rate accelerating to 31% in February, from 25% in January.

“The acceleration (in the WPI) was driven by a sharp rise in primary articles and fuel inflation,” Nomura’s Varma wrote. “Primary inflation rose to 5% y-o-y in February from 1.3% in January, led by a 1.5% m-o-m (month-on-month) rise in non-food prices (flowers, rubber, coconut) and a steep 9% m-o-m rise in mineral prices (manganese ore, crude petroleum, copper ore). Fuel price inflation also picked up on higher coking coal and other market-linked fuel prices.”

Wholesale inflation in the fuel and power segment quickened to 21% in February, from 18% in the previous month. Within this, coal price inflation stood at 19%.

“We had expected an adverse base effect to push up WPI inflation in February 2017 to 5.9%,” Aditi Nayar, Principal Economist at ICRA, said. “The lagged revision in the minerals sub-index, particularly for crude oil, contributed to the sharper-than-anticipated spike in WPI inflation to 6.5% in February 2017, as well as the upward revision in the December 2016 print to 3.7%.”

Inflation in manufactured products in the WPI eased marginally to 3.7% in February, from 4% in January.

“Manufactured inflation moderated to 3.7% y-o-y in February from 4% in January, as prices of beverages and tobacco, wood, leather and basic metal products declined sequentially,” Nomura’s Varma wrote. “Thus, the WPI inflation uptick was driven by higher input costs and not by higher output prices.”

Food and fuel prices spur acceleration in inflation Reviewed by on . CPI inflation quickens to 3.65%, WPI-based figure hits 39-month high of 6.55% Retail and wholesale price inflation accelerated in February, spurred by food and CPI inflation quickens to 3.65%, WPI-based figure hits 39-month high of 6.55% Retail and wholesale price inflation accelerated in February, spurred by food and Rating: 0
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