September WPI data rises to 6.46%

Wholesale Price Index (WPI) inflation numbers, considered as the next big trigger after IIP data, for determining the policy stance of the central bank on October 19 quarterly policy review, came as a rude shock, surging over 6.46% in September. The reading for July too has been revised upward to 5.58% from 5.79% earlier.

The annual rate of inflation, based on monthly WPI, stood at 6.46% (provisional) for the month of September, 2013 (over September , 2012) as compared to 6.10% (provisional) for the previous month and 8.07% during the corresponding month of the previous year. Build up inflation rate in the financial year so far was 5.64% compared to a build up rate of 4.84% in the corresponding period of the previous year. The Wholesale Price Index for ‘All Commodities’ (Base: 2004-05 = 100) for the month of September, 2013 rose by 1.2% to 179.7 (provisional) from 177.5 (provisional) for the previous month.

Manufactured Products, the major group with weight of 64.97%, rose by 0.70% to 151.0 (provisional) from 150.0 (provisional) for the previous month. Within the group, index for Food Products group rose by 1.4% to 170.0 (provisional) from 167.7 (provisional) for the previous month due to higher price of tea leaf (blended) (20%), processed prawn (14%), copra oil, cotton seed oil and tea leaf (unblended) (4% each), palm oil (3%),  groundnut oil, sunflower oil, gingelly oil and tea dust (blended)  (2% each) and rice bran oil, soyabean oil,  mixed spices, ghee, khandsari, maida, wheat flour (atta),  oil cakes,    gram powder (besan), tea dust (unblended) and gola (cattle feed) (1% each).  However, the price of bakery products and sugar (1% each) declined.

Meanwhile, Primary Articles, the major group having a weightage of 20.12% in overall index, witnessed a rise of 1.5% to 251.6 (provisional) from 247.8 (provisional) for the previous month. Within the group the index of ‘Food Article’ rose by 0.8% to 252.3 (provisional) from 250.3 (provisional), while the index for ‘Minerals’ group rose by sharp 6.4% to 352.1 (provisional) from 330.9  (provisional), due to higher price of copper ore (9%), crude petroleum (8%), dolomite (6%), iron ore (5%), steatite (2%) and       limestone and zinc concentrate (1% each).  However, the price of barytes (9%), sillimanite (7%) and chromite and manganese ore (1% each) declined. However, the index for 'Non-Food Articles' group declined by 2% to 213.7 (provisional) from 209.6 (provisional) for the previous month.

Further, Fuel & Power, having weight of 14.91% rose by 2.6% to 207.5 (provisional) from 202.3  (provisional) for the previous month due to higher price of light diesel oil (11%), furnace oil (8%), aviation turbine fuel (7%), naphtha (7%),  petrol (6%), lubricants (3%), kerosene and bitumen (3% each), high speed diesel (2%) and LPG (1%). Notably, core inflation rose to 2.1% versus 1.9% (month on month).

The alarming rise in WPI numbers after a disappointing factory output data is likely to make the central bank's job lot more difficult, as this adds to their dilemma for fighting inflation, even at the cost of comprising with the pace of economy’s growth, which is already running at decade low. Thus, the elevated price levels will add more pressure on the Reserve Bank of India, leading to further rate hikes.