December inflation dives to lowest levels in two years to 7.47%

India’s headline inflation measured by the Wholesale Price Index (WPI) for the month of December 2011 finally sank below the uncomfortable 9% for the first time since December, 2010 to the lowest levels in around two years to 7.47%. The inflation reading in the month of November was at 9.11%. The decline in headline inflation is on the back of the sharp decline in prices of primary articles and food articles. However, in the month of December, manufactured products and fuel & power inflation slipped only marginally to 7.41% and 14.91% as compared to 7.70% and 15.48% respectively.

According to the data released by the ministry of commerce and industry, the annual rate of inflation, based on monthly WPI, stood at 7.47% in December as compared to 9.11% for the previous month and 9.45% during the corresponding month of the previous year. Build up inflation in the financial year so far was 4.95% compared to a buildup of 7.12% in the corresponding period of the previous year.

On the month-on-month basis, primary articles declined by 1.6% to 197.9 from 201.1 for the previous month. The index for ‘Food Articles’ group declined by 3.1% to 190.8 from 196.9 for the previous month due to lower prices of fruits & vegetables (13%), condiments & spices (6%), urad (5%), poultry chicken   (3%),  tea (2%) and jowar, rice, arhar, ragi and barley (1% each).  However, the prices of pork (8%), fish-marine   (5%), maize (3%), bajra, egg, beef & buffalo meat, mutton and masur (2% each) and gram, coffee, wheat and milk (1% each) moved up.

The index for ‘Non-Food Articles’ group rose by 1.3% to 178.6 from 176.3 for the previous month due to higher prices of gaur seed (20%), flowers (14%), linseed (8%), soyabean (6%), rape & mustard seed (5%), raw silk (4%), sunflower and raw rubber (3% each), safflower, groundnut seed and niger seed (2% each) and gingelly seed and fodder (1% each).  However, the prices of cotton seed (6%), castor seed (4%), coir fibre, raw cotton and raw jute (3% each) and copra (1%) declined.

The index for ‘Minerals’ group rose by 2.6% to 318.5 from 310.5 for the previous month due to higher prices of sillimanite (50%),  barytes (6%), iron ore and bauxite (4% each), dolomite and crude petroleum (3 % each) and magnesite (1%).  However, the prices of steatite (7%) and copper ore (4%) declined.

The index for the Fuel and Power, which has weight of almost 15% in the WPI, rose by 0.6% to 172.6 from 171.6 for the previous month due to higher prices of naphtha (5%), aviation turbine fuel, light diesel oil and bitumen (4% each) and furnace oil (3%).  However, the prices of petrol (3%) declined.

The index for Manufactured Products, which has weight of almost 65% in the WPI, rose by 0.6% to 140.6 from 139.8 for the previous month. Under this segment, the index for Beverages, Tobacco & Tobacco Products, Food products, Wood & Wood Products, Leather & Leather Products, Chemicals & Chemical Products, Non-Metallic Mineral Products, Basic Metals, Alloys & Metal Products and Transport, Equipment & Parts rose while the index for Paper & Paper Products, Textiles declined in the month under review.

The sharp decline in headline inflation has come after the RBI has increased its key policy rates for 13 times since March 2010. The Indian central bank is scheduled to meet for its third quarterly monetary policy review on January 24 and it is widely expected that the Reserve Bank may refrain from its aggressive monetary tightening measures as the WPI inflation has primarily been on a declining trend.