At 0.52%, WPI for August stays negative for 5th month in a row

Subject :Economy

Section: Inflation

In News: India’s wholesale prices remained in deflationary mode for the fifth month in a row in August, as per Ministry of Commerce.

Key Points:

India’s wholesale prices remained in deflationary mode for the fifth month in a row in August.
But the decline in prices eased to -0.52%from -1.36% in July, even as inflation in food and primary articles moderated to about 6% from over 7.5% in the previous month.

What components of WPI reduced the deflation?

The dip in the deflation rate was largely driven by fuel and power prices, whose year-on-year decline more than halved from -12.8% in July to -6% in August.
Deflation in manufactured products dropped fractionally from -2.5% in the previous month to -2.4% in August.
On a month-on-month basis, the Wholesale Price Index (WPI) moved up for the second successive month, rising 0.33% in August compared to 2.01% in July.
Fuel and power costs actually rose 3% after several months of declines, while manufactured products prices rose for the first time in four months, at a marginal pace of 0.14%.
The Commerce and Industry Ministry attributed the negative rate of inflation “primarily to the fall in prices of mineral oils, basic metals, chemical & chemical products, textiles and food products”.

What about food?

While the wholesale food index was up 5.6%,primary food articles inflation remained elevated at 10.6% in August after hitting a decade-high of 14.25% in July, with vegetable prices rising 48.4% compared to 62.1% in July.

Overall inflation outlook?

Economists expect wholesale inflation to rebound from the deflationary trend in coming months, which would also feed into pressures on inflation in consumer prices, which remained elevated at 6.83% in August.
Prices of crude oil, cereals and pulses are rising and industrial as well as consumer demand is holding up.
This would keep CPI inflation in the range of 5.5%-6.5% over the next two quarters and not allow it to come down sharply.

Wholesale Price Index (WPI)

WPI captures the average movement of wholesale prices of goods and is primarily used as a GDP deflator.
WPI(2011-12) reckons only basic prices and does not include taxes, rebate/trade discounts, transport and other charges.
Wholesale Price Index (WPI) is based on the prevailing wholesale market price.
It is composed of three components
- Manufactured products = 65% approx (64.2% now)
- Primary articles = 20% approx (22.6% now)
- Fuel and power = 15% approx (13.1% now)
The WPI basket includes 676 (Changed to 697 now) commodities in total- all of these are only goods and whose prices are captured at the wholesale/producer level.
It is measured by the Ministry of commerce and industry with base year as 2004-05 (Changed to 2011-12 now).

At ­0.52%, WPI for August stays negative for 5th month in a row