Inflation declines significantly to 6.8%

WPI inflation for the week ending Dec 6th declined to 6.84%. Lower than consensus (Consensus: 7.4%, Previous week: 8.00%, last year corresponding week: 3.84%).

Inflation drivers: The WPI inflation was primarily driven down by domestic retail fuel price cut as well as decline in non-administered fuel prices (like naphtha, furnace oil, bitumen etc) due to falling global crude oil prices.

Bottomline:

* For second week in a row, the prices of food articles like fruits and vegetables declined due to seasonal fators. It comes as a relief, as food index had been rising for 6 weeks prior to this.
* This decline in food article will be reflected in CPI for Dec (It has continued to increase till Sept) as it has higher weightage of food.
* Annual rate of inflation for the Fuel, Power, Light and Lubricant index now stands at 0.58%. Global fuel prices even touched $40/ bbl yesterday inspite of large production cut by OPEC.
* Going forward, manufacturing index is expected to decline due to pass though of excise duty cut, secondary impact of fuel price decline, lower commodity prices etc.
* Interesting to note that if the index is assumed to remain at this level, the WPI index for March comes down to 2.4% yoy.