A decline in the prices of fuel and manufactured products helped inflation, as measured by the wholesale price index (WPI), to moderate to 5.7% (provisional) for March 2017 despite hardening of food prices, data released by the government on Monday showed.
The WPI inflation had touched a 39-month high of 6.55% (provisional) in February while it was -0.45% in March 2016.
The annual rate of inflation based on monthly Wholesale Price Index (WPI) moderated to 5.7% (provisional) for March 2017 thanks to decline in prices of fuel and manufactured products even as food prices hardened, data released on Monday by the commerce and industry ministry showed. The WPI inflation had touched a 39-month high of 6.55% (provisional) in February, while it was -0.45% in March 2016.
“Compared to last month (February), WPI Inflation declined by 85 basis points (bps) to 5.70% in March’17 due to sharp decrease in prices of items like potato (-17.07%), onion (-10.78%), non-food articles (4.91%), oil seeds (-0.9%),” said Soumya Kanti Ghosh, chief economic advisor, Economic Research Department, SBI.
“Earlier, the largest decline in month-on-month inflation was in August ’15,” Mr. Ghosh added. “The decline was accentuated by decline in fuel and power inflation and manufactured products.... Fuel prices were significantly cut on March 31 while rupee has been on an appreciating trend since February 2017.
“These two factors have pushed down fuel and manufactured product prices,” he said.
“Primary food inflation trended higher as vegetable inflation emerged after six months of deflation although food price pressures are not yet a concern, as prices of cereals, pulses and spices have fallen sequentially in the last two to three months,” said an analysis by Nomura.
“Fuel price inflation moderated on favourable base effects and a fall in most market-linked fuels. Furthermore, manufactured inflation moderated sharply to 3% in March from 3.7% in February as prices for manufactured food, non-metallic minerals and machine tools declined sequentially while other categories experienced muted increases,” it said.
“Food inflation has increased a bit and this would require greater monitoring in light of the evolving weather conditions,” said Pankaj Patel, president of the industry body FICCI.
“The government is keeping a close tab on the progress made on irrigation projects, cold chain projects etc. and improvement in these areas is likely to yield positive results.
“The focus on drip irrigation and micro-irrigation along with improvement in the efficiency of cropping patterns and water use mechanisms will strengthen agri-production and productivity,” he said. “Commodity prices – crude as well as metal prices – had been edging up putting pressure on wholesale prices over the past few months. However, the WPI based inflation announced today shows a decline from the previous month and this can be attributed to softening of inflation in fuel and power and manufactured goods segments. Further, the recent strengthening of rupee vis-a-vis the U.S. dollar will also contribute towards limiting imported inflation,” he said.
Output prices
The analysis done by Nomura research analysts Sonal Varma and Neha Saraf said: “Despite the surge in input cost inflation since January, firms have been reluctant to raise output prices, likely reflecting uncertainty over the demand outlook after demonetisation.
“As demand recovers, we expect firms to start passing on past input cost increases to consumers and the sharp drop in perishable food inflation to reverse. Yet, we believe February marked the peak in year-on-year WPI inflation and it should gradually taper off over 2017 on base effects,” they added.
“Considering the higher-than-expected WPI inflation in Q1, we are raising our 2017 forecast to 4.7% (from 4%)” they said. Primary inflation moderated to 4.6% y-o-y in March from 5% in February owing to a 1.8% month-on-month decline in prices of non-food items. such as rubber, flowers and oilseeds. Food inflation increased to 3.12% in March from 2.69% in February due to a 5.7% increase in vegetable price inflation from -8.05% in February.
