WPI inflation jumps to six months high at 6.1%

Wholesale Price Index (WPI) inflation numbers, which were touted as the next big trigger after CPI and IIP data, for determining the policy stance of the central bank on September 20 mid-quarter review, has came as a rude shock, surging over 6 percent against the expectation of the numbers coming flat near to the last month’s level. Last month, the WPI came in at four month high and the August numbers have even surpassed that, coming at a six-month high. The reading for June too has been revised upward to 5.16% from 4.86%.

The annual rate of inflation, based on monthly WPI, stood at 6.10% (provisional) for the month of August, 2013 (over August, 2012) as compared to 5.79% (provisional) for the previous month and 8.01% during the corresponding month of the previous year. Build up inflation rate in the financial year so far was 3.91% compared to a build up rate of 4.35% in the corresponding period of the previous year. The Wholesale Price Index for ‘All Commodities’ (Base: 2004-05 = 100) for the month of August, 2013 rose by 1.7% to 177.5 (provisional) from 175.4 (provisional) for the previous month.

Primary Articles, the major group having a weightage of 20.12% in overall index, witnessed a rise of 3.8% to 247.8 (provisional) from 238.8 (provisional) for the previous month. Within the group the index of ‘Food Article’ rose by 5.3% to 250.3 (provisional) from 237.7 (provisional), while the index for ‘Minerals’ group rose by 0.7% to 330.9 (provisional) from 328.5 (provisional). However, the index for 'Non-Food Articles' group declined by 0.5% to 209.6 (provisional) from 210.7 (provisional) for the previous month.

Fuel & Power, having weight of 14.91% rose by 1.3% to 202.3 (provisional) from 199.8  (provisional) for the previous month due to higher price of aviation turbine fuel, light diesel oil, kerosene, LPG and petrol. Manufactured Products, the major group with weight of 64.97%, witnessed a decline of 0.1% to 150.0 (provisional) from 150.2 (provisional) for the previous month. Within the group, Food Products, Beverages, Tobacco & Tobacco Products, Paper & Paper Products, Leather & Leather Products, Non-Metallic Mineral Products and Machinery & Machine Tools group declined. On the other hand, Textiles, Wood & Wood Products, Basic Metals, Alloys & Metal Products and Transport, Equipment & Parts group rose for the month.

The disappointing and alarming WPI numbers are likely to make the central bank's job more difficult, as it may have to go against the wishes of the industry and take measures such as raising interest rates to stifle inflation, which could undermine economic growth, already strained and running at a decade low. Further there will be little option left with the apex bank as Fed is expected to reduce its $85 billion a month bond-buying programme and India along with other emerging markets will be having reduced capital inflows, putting pressure on their currency.