India’s inflation eases to 9.11% in Nov but remains slightly above street expectations

India’s headline inflation measured by the Wholesale Price Index (WPI) for the month of November 2011 fell to its lowest level in last 12 months, stood at 9.11% as compared to 9.73% in last month. 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 November, manufactured products and fuel and power article, showed surge in prices, it increased to 7.7% and 15.48% as compared to 7.66% and 14.79% respectively.

According to the data released by the ministry of commerce and industry, the WPI for 'All Commodities' for the month November, 2011 rose by 0.1% to 156.9 (Provisional) from 156.8 (Provisional) for the previous month. Build up inflation in the financial year so far was 4.95% compared to a buildup of 5.50% in the corresponding period of the previous year.

On the month-on-month basis the primary articles declined by 1.6% to 201.1 (Provisional) from 204.3 (Provisional) for the previous month. The index for ‘Food Articles’ group declined by 2.0% to 196.9 (Provisional) from 200.9 (Provisional) for the previous month due to lower prices of fruits and vegetables (7%), poultry chicken (6%), fish-inland and moong (4% each), urad (3%), masur (2%) and condiments and spices, rice and wheat (1% each).  However, the prices of tea (5%), fish-marine and egg (4% each), gram and coffee (3% each) and pork, jowar, mutton and ragi (1% each) moved up.

The index for ‘Non-Food Articles’ group declined by 1.5% to 176.3 (Provisional) from 178.9 (Provisional) for the previous month due to lower prices of logs and timber (17%), mesta (11%), raw rubber (9%), raw silk and raw jute (5% each), groundnut seed (4%), niger seed and raw cotton (3% each) and coir fibre (2%). However, the prices of gingelly seed (5%), soyabean (4%), flowers, fodder and gaur seed (3% each) moved up.

The index for ‘Minerals’ group rose by 1.1% to 310.5 (Provisional) from 307.0 (Provisional) for the previous month due to higher prices of barytes (8%), bauxite (4%), crude petroleum (3%), chromite (1%). However, the prices of zinc concentrate (6%), sillimanite and copper ore (3%) and dolomite, manganese ore and iron ore (1% each) declined.

The index for the Fuel and Power, which has weight of almost 15% in the WPI, rose by 0.9% to 171.6 (Provisional) from 170.0 (Provisional) for the previous month due to higher prices of aviation turbine fuel, furnace oil and naphtha (6% each) and bitumen and petrol (1% each).  However, the prices of light diesel oil (1%) declined.

The index for Manufactured Products, which has weight of almost 65% in the WPI, rose by 0.5% to 139.8 (Provisional) from 139.1 (Provisional) for the previous month. Under this segment, the index for Beverages, Tobacco & Tobacco Products, Textiles, Paper & Paper Products, Leather & Leather Products, and Chemicals & Chemical Products saw increase in prices in November 2011. However, the index for Food Products, Wood & Wood Products, and Rubber & Plastic Products registered decline in prices in November compared to month of October.

Despite the marginal decline in headline inflation, it has remained above 9% mark for straight 12 months, which indicates that the Reserve Bank of India (RBI) has failed to control inflation by its anti-inflationary stance. The government also has done upward revision of inflation for the month of September, which stood at 10% as compared to 9.72%. The data further revealed that moderating prices of essential food items like onions, potatoes and milk have pulled down inflation marginally to 9.11% in November, a development that may prompt the RBI to halt its monetary tightening strategy at its policy review on December 16.

Since March 2010, the RBI has increased its key policy rates for 13 times, this non-stop increase in key policy rates has increased the interest rates, which have affected the investment in the industrial sector.   India’s industrial production in the month of October declined to -5.1%, which is its lowest level in last two years. However, the high inflation, weak economic growth, decline in industrial production and declining rupee, has left RBI with difficult policy choices.