Inflation Report : Inflation hovers around 30-year low; rises W-o-W though

Wholesale price index (WPI)-based inflation for the week-ended March 14 came in at 0.27% Y-o-Y, above expectations (Edelweiss: 0.04% and consensus: 0.12%). This is lowest Y-o-Y growth if we consider the current inflation series which takes 1993-94 as its base year. However, going back in history, it is the lowest number since January 1979. The overall trend for prices continues to move downwards due to weakening demand and poor business outlook.

W-o-W, primary articles’ inflation rose owing to higher food prices, particularly of few cereals, pulses, fruits, and vegetables. Manufactured group inflation also rose by 0.2% W-o-W due to higher prices of manufactured food products, iron, and steel.

Fuel group inflation remained unchanged. But, in the coming week, we expect a slight upward movement in it owing to rise in prices of non-administered components along with increase in prices of aviation turbine fuel.

Negative inflation within sight

Sluggish real activities and rapid correction in commodity prices, both in international and domestic markets, have dampened inflationary pressures. In the coming weeks we are likely to enter a phase of negative inflation. Apart from subdued demand and lower prices, a markedly favorable base effect is likely to drive prices further down Y-o-Y.

CPI yet to decline

With food articles having the maximum weightage in consumer price indices (CPI), CPI-based inflation is yet to decline significantly. Consumer Price Index for agricultural labourer (CPI-AL) and rural labourers (CPI-RL) remains at 10.79% in February. CPI-IW was at 10.45% Y-o-Y in January 2009. Weights of the fuel group and metals (two major contributors to softening of WPI inflation) are relatively less across all CPI variants.