Inflation accelerates to eight months high level at 7% in October

In yet another blow to the economy after the double digit retail inflation numbers, India's main inflation gauge, based on monthly WPI, accelerated to highest level since February at 7% for the month of October as against 6.46% (Provisional) for the previous month of September and 7.32% during the corresponding month in the previous year, mainly driven by higher fuel and manufactured goods prices. These numbers although way higher than RBI’s commonly perceived comfort level of 5% were in-line with street expectation. Worryingly, August inflation figures too were revised upwards to 6.99% from 6.10% earlier. Thus, with this the build-up inflation rate in the financial year so far stood at 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 October, 2013 rose by 0.3% to 180.3 (provisional) from 179.7 (provisional) for the previous month. Out of this, Manufactured Products, the major group with weight of 64.97%, rose by 0.4% to 151.6 (provisional) from 151.0 (provisional) for the previous month. Within the group, index for Food Products group declined by just by 0.1% to 169.8 (provisional) from 170.0 (provisional) for the previous month due to lower price of tea leaf (blended) (3%), tea dust (unblended) (2%) and tea dust (blended), sugar, gur, sunflower oil and khandsari (1% each). However, the price of processed prawn (4%), ghee, mixed spices, cotton seed oil, oil cakes and copra oil (1% each) moved up.

Meanwhile, Primary Articles, the group having a weightage of 20.12% in overall index, remained unchanged at its previous month level of 251.6 (provisional). Within the group the index of ‘Food Article’ declined by 0.4% to 251.4 (provisional) from 252.3 (provisional) for the previous month due to lower price of ragi and maize (5% each), tea (4%) and poultry chicken, fruits & vegetables and fish-marine (3% each).  While, the prices of fish-inland (8%), moong (5%), coffee (3%), condiments & spices, egg, wheat, urad and pork (2% each) and rice, mutton, beef & buffalo meat, barley and arhar (1% each) moved up.

Further, Fuel & Power, having weight of 14.91% rose by 0.9% to 209.4 (provisional) from 207.5 (provisional) for the previous month due to higher price of electricity (agricultural) (13%), electricity (industry) (10%), electricity (domestic) (5%), electricity (commercial) and electricity (railway traction) (4% each), aviation turbine fuel (3%) and bitumen, lubricants and kerosene (1% each). 

Worryingly, October’s core Inflation too spiked up to 2.6% against 2.1% in the previous month. Thus, this set of data combined with double digit retail inflation number and lower than expected factory output figures exert pressure on RBI to continue its fight against inflation in its upcoming monetary policy review in Mid-December.