WPI Inflation rises to 3.58% in December; lower than market expectations

Key highlights:

• December 2017 WPI data comes as a surprise as it is lower than what market expected
• Fuel and power, which accounts 13.15% of WPI, rose by by 1.6% to 96.5 from 95.0 for the previous month
• Manufacturing group, 64.23% weightage in WPI, grew by 0.1% to 114.0 from 113.9 for the previous month

India's wholesale price index (WPI) inflation came in at 3.58% in December 2017 – gradually lower from 3.93% of November 2017 and higher from 2.10% a year ago same period.

According to the CSO data, the WPI for all commodities (base: 2011-12=100) for the month of December, 2017 declined by 0.5 percent to 115.7 (provisional) from 116.3 (provisional) for the previous month.

source: tradingeconomics.com

Average inflation rate in the financial year so far was 2.21% compared to a build up rate of 3.71% in the corresponding period of the previous year.

December 2017 WPI data comes as a surprise because it is lower than what market expected.

A Bloomberg poll of economist estimated WPI to be at 4% in December 2017.

ICRA also expected the WPI inflation to rise further to above 4.0% in December 2017, before easing to a range of 3.2% to 3.5% in Q4 FY2018, benefiting from the base effect.

Rate of inflation based on WPI Food Index consisting of ‘Food Articles’ from Primary Articles group and ‘Food Product’ from Manufactured Products group decreased from 4.10% in November, 2017 to 2.91% in December 2017.

The CSO data showed that index of primary articles declined by 2.9% to 131.7 (provisional) from 135.6 (provisional) for the previous month.

Under primary articles, ‘Food Articles’ group declined by 4.3% to 144.1 (provisional) from 150.6 (provisional) for the previous month due to lower price of fruits & vegetables (14%), peas/chawali (6%), gram and egg (5% each), rajma and poultry chicken (4% each), coffee and fish-inland (3% each), urad and tea (2% each) and maize and masur (1% each).

On the other hand, ‘Non-Food Articles’ group rose by 1.8% to 119.0 (provisional) from 116.9 (provisional) for the previous month due to higher price of floriculture (19%), copra (coconut) (8%), raw silk, gingelly seed and guar seed (7% each), raw cotton (6%), raw wool and raw rubber (4% each), hides (raw) and soyabean (3% each), cotton seed, rape & mustard seed and castor seed (2% each) and raw jute, skins (raw), sunflower and coir fibre (1% each).

Minerals group also declined by 5.4 p% to 122.3 (provisional) from 129.3 (provisional) for the previous month due to lower price of copper concentrate (14%), lead concentrate and zinc concentrate (7% each).

While ‘Crude Petroleum & Natural Gas’ group rose by 4.8% to 78.1 (provisional) from 74.5 (provisional) for the previous month due to higher price of crude petroleum (7%). However, the price of natural gas (1%) declined.

Primary articles group has a weightage of 22.62% in WPI.

Fuel and power index, which account 13.15% of WPI, rose by by 1.6% to 96.5 (provisional) from 95.0 (provisional) for the previous month.

Index for ‘Coal’ group rose by 0.6% to 118.3 (provisional) from 117.6 (provisional) for the previous month due to higher price of lignite (18%).

Manufacturing group which has highest weightage of 64.23% in WPI, grew by 0.1% to 114.0 (provisional) from 113.9 (provisional) for the previous month.

Under manufacturing group in December 2017, the food products declined by 0.4% to 127.4 provisional, while tobacco products tumbled by 2.1% to 152.1, textiles were down by 0.4% to 113.0 and plastic products plunged by 0.1% to 107.5.

However, in manufacturing groups, sectors like beverages, wearing apparel, paper products, chemical products, pharma products and non-metallic products rose by 0.2%, 1%, 0.3%, 0.5%, 1.2% and 0.2% respectively in December 2017.

For the month of October, 2017, the final Wholesale Price Index for ‘All Commodities’ (Base: 2011-12=100) stood at 115.6 as compared to 115.5 (provisional) and annual rate of inflation based on final index stood at 3.68% as compared to 3.59% (provisional) respectively.

On previous WPI data, Sujan Hajra and Pooja Banthia, analysts at Anand Rathi, said, “Despite the likely seasonal softening of prices, this inflation is likely to remain high till the first quarter of FY19. While successive hardening of core inflation in the last five months can be seen as a cause for concern, this too is largely unfavourable base induced.”