Demonetisation may not harm wholesale inflation

Anushka Sawarkar – Associate Economist at Care Ratings said, “In terms of effect of the recent demonetisation, certain sectors could face fall in demand owing to the cash crunch. Demand for food would have limited impact.”

Overall certain sectors may witness moderation in demand, but WPI on an aggregate level will face limited impact, analysts think. Photo: Reuters

Wholesale Price Index (WPI) or wholesale inflation declined to 3.39% in October 2016 as compared to 3.57% of September 2016.

Anushka Sawarkar – Associate Economist at Care Ratings said, “In terms of effect of the recent demonetisation, certain sectors could face fall in demand owing to the cash crunch. Demand for food would have limited impact.”

As per the data released by Ministry of Commerce & Industry, in comparison with previous month, fall was seen in primary articles at 3.31% (from 4.76%), food articles at 4.34% (from 5.75%) and non-food articles at 1.13% (from 4.49%). While fuel prices have continued to rise.

"While manufactured products could face less demand owing to the sudden unavailability of cash, which was earlier set aside by households for the intended purchase, " added Sawarkar.

Overall certain sectors may witness moderation in demand, but WPI on an aggregate level will face limited impact, analysts think.

Care Ratings expect the WPI to be around 3.5- 4% for the rest of the year.

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