After better than expected, sparkling IIP numbers, the WPI inflation for the month of November has come in line with expectations. The WPI inflation for the month of November eased to 7.48% from 8.58% in the month of October. This is the fourth consecutive month when the overall inflation has been in the single digit. It remained over 10% for six months till July. The decline in November 2010 inflation rate was mainly due to a sharp decline in inflation rate for primary articles (13% in November 2010 as against 16.68% in October).
As per the WPI data, prices of primary articles -- food, non-food articles and minerals -- shot up by 13 % on an annual basis. However, prices of certain food items declined year-on-year. While wheat became cheaper by 1.49 %, pulses fell by 8.37 % and vegetables overall went down by 4.59 %. During the month, fuel and power prices went up by 10.32 %, while manufactured goods became expensive by 4.56 % on an annual basis. Manufactured items have the highest weight of 64.9 % in the wholesale price index, on the basis of which inflation is calculated. Within manufactured products, sugar prices eased by 10.97 % and leather and leather goods by 1.77 % on an annual basis.
As per the WPI data, prices of primary articles -- food, non-food articles and minerals -- shot up by 13 % on an annual basis. However, prices of certain food items declined year-on-year. While wheat became cheaper by 1.49 %, pulses fell by 8.37 % and vegetables overall went down by 4.59 %. During the month, fuel and power prices went up by 10.32 %, while manufactured goods became expensive by 4.56 % on an annual basis. Manufactured items have the highest weight of 64.9 % in the wholesale price index, on the basis of which inflation is calculated. Within manufactured products, sugar prices eased by 10.97 % and leather and leather goods by 1.77 % on an annual basis.
Thus, the major contribution on the downside has come from the food and primary commodities, which had been the key reason for high inflation for over a year. The decline is mainly based on the increased availability of food crops and expectation of a good agricultural harvest may result is further decline in inflation over the next few months. Within the primary goods segment, food inflation also came down substantially and in fact in single digits for the first time in over a year, at 9.41% compared with 14.13%.
The RBI stated in its last policy review that it would hike rates further in near term if inflation trajectory did not deviate substantially from that expected. With a significant decline in inflation seen in November, it is quite likely that RBI will leave key rates unchanged. Also, if the decline continues in December as well, central bank may leave the rates unchanged perhaps for rest of the fiscal.
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