Wholesale prices decline further in March

Wholesale prices in the country declined 2.33 per cent in March compared with deflation of 2.06 in February, official figures show. The wholesale prices, which last declined in July 2009, have been softening since late 2014.

The wholesale price index (WPI), which is a combination of three broad categories—primary articles, fuel and power and manufactured products—captures price movements and demand supply shifts in industry at large besides manufacturing and construction.

Last month, prices declined in primary articles and manufactured products while prices increased by 3.3 per cent in fuel and power category, which accounts for about 15 per cent  of the index. Manufactured products, which accounts for two-thirds of the weight, declined 0.1 per cent compared with a 0.3 per cent decline in February. Meanwhile, on a month-on-month basis (March over February) WPI rose for the first time in six months.

The increase in fuel and power category came primarily from the firming up of global commodity prices. Commodity prices, which have fallen from high of $115 per barrel last year, touched $46 per barrel in January before rising again in March. The price of crude oil for Indian import basket was $57.44 per barrel on Tuesday.

"Going ahead, as crude oil prices have started to firm up once again on the back of geopolitical tensions and idiosyncratic factors, we could see some more upward adjustment in the WPI fuel reading," wrote Shubhada Rao, chief economist at Yes Bank in a note released on Wednesday.

The wholesale price index, which has lost relevance in recent times as it leaves out the services sector which constitutes over half of the economy, is still seen as an important indicator as it tracks manufacturing products prices.

The manufacturing sector has been growing slowly over the past year. While the new IIP figures released last week provide a relief for the government, the decline in the prices of manufactured products indicates that the demand for manufactured goods is still weak.

Consumer price index, which is now closely tracked for monetary policy decisions, released on Monday also declined for March. Inflation as measured by CPI declined for the first time in five months to 5.17 per cent in March despite unseasonal rains and rising commodity prices. The effect of the crop destroyed due to unseasonal rains did not show up in any of the inflation readings for the month.

The falling rates of inflation has brought up expectations of a rate cut as the current rate of inflation leaves room for RBI to cut policy rate before the Fed start hiking rates. The bank is expected to wait and watch for inflation figures for April before it decides on policy action. The next RBI monetary policy meeting is scheduled for June 2.

(Edited by Joby Puthuparampil Johnson)

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