Headline inflation surges marginally to 9.73% in Oct

India’s headline inflation measured by Wholesale Price Index (WPI) for the month of October saw marginally increase to 9.73% as compared to 9.72% in September; the headline inflation has been outriding above 9.7% mark since last three weeks. The marginal increase in prices of fuel and power (0.7%) and food articles (1.83%) on sequential basis are the main reasons for surge in inflation. However, primary articles and manufactured products saw marginal decline, they fell to 11.40% and 7.66% in October, compared to 11.84% and 7.69% in September.

According to the data released by the ministry of commerce and industry, the WPI for 'All Commodities' for the month October 2011 rose by 0.6% to 156.8 (Provisional) from 155.8 (Provisional) for the previous month. Build up inflation in the financial year so far was 4.88% compared to a buildup of 4.84% in the corresponding period of the previous year.

On the month on month basis the primary articles rose by 1.0 % to 204.3 (Provisional) from 202.2 (Provisional) for the previous month. The index for ‘Food Articles’ group rose by 2.2 % to 200.9 (Provisional) from 196.5 (Provisional) for the previous month due to higher prices of fish-inland (12%), gram (10%), condiments & spices (6%), fruits & vegetables (5 %), egg (3%), urad, masur, rice and arhar (2% each) and ragi, pork, moong, tea and milk (1% each). However, the prices of fish-marine (7%), poultry chicken and bajra (5% each), maize and jowar (4% each), barley and coffee (2% each) and wheat (1%) declined.

The index for ‘Non-Food Articles’ group declined by 3.0 % to 178.9 (Provisional) from 184.4 (Provisional) for the previous month due to lower prices of safflower (19%), castor seed (12%), soyabean (9%), flowers (8%), sunflower, raw jute, raw cotton and coir fibre (6% each), groundnut seed (4%), raw silk and copra (3% each) and rape & mustard seed and niger seed (1% each). However, the prices of gingelly seed (10%), gaur seed and linseed (3%) and fodder (1%) moved up.

The index for ‘Minerals’ group rose by 0.3 % to 307.0 (Provisional) from 306.1 (Provisional) for the previous month due to higher prices of steatite (15%), magnesite (7%), barytes (5%) and crude petroleum (3%).  However, the prices of copper ore (12%), chromite (5%), bauxite and zinc concentrate (3% each), manganese ore (2%) and sillimanite and iron ore (1% each) declined.

The index for the Fuel and Power, which has weight of almost 15% in the WPI, rose by 1.0 % to 170.0 (Provisional) from 168.4 (Provisional) for the previous month due to higher prices of bitumen (5%), furnace oil (4%), naphtha and aviation turbine fuel (3% each), petrol and light diesel oil (2% each) and electricity (agricultural), electricity (domestic), electricity (commercial) and electricity (railway traction) (1% each).  However, the prices of electricity (industry) (1%) declined.

The index for Manufactured Products, which has weight of almost 65% in the WPI, rose by 0.4 % to 139.1 (Provisional) from 138.6 (Provisional) for the previous month. Under this segment of WPI, the index for ‘Food Products’, the index for ‘Paper & Paper Products’, the index for ‘Leather & Leather Products’, the index for ‘Rubber & Plastic Products’, saw increase in prices during October compared to last month. However, the index for ‘Beverages, Tobacco & Tobacco Products’, the index for ‘Textiles’ registered decline in prices in October compared to month of September.

The current rate of inflation is serious matter of concern across all segments of economy. The latest inflation data is making a strong case for Reserve Bank of India (RBI) to maintain its anti-inflationary stance and there is good possibility that RBI may go for 14th hike in its short term lending and borrowing rates. The RBI has increased its key policy rates by 375 basis points in last 18 months to tame inflation, however has failed to do so.

On the other hand, the increased interest rate has affected the Indian Banking System, which saw an almost 33.46% increase in its bad loans during second quarter of 2011-12. The gross non-performing assets of 37 listed Indian Banks increased to 1.06 lakh crore in June to September 2011 compared to Rs 79,078 in June to September 2010. This huge surge in gross NPA of Indian banks is mainly because of the non-stop hike in RBI’s key policy rates.

However on many occasions, RBI has hinted that, it may take pause in interest rate hike cycle only if inflation moderates from December. However, latest data indicates that the inflation is less likely to show any sign of moderation from its current rate.