WPI inflation falls for sixth consecutive month

A fall in prices of fuel and power and manufacturing led to a further decline of Wholesale Price Index (WPI) in April, official figures showed. Wholesale prices remained in the negative territory for the sixth month consecutively, registering a decline of 2.65 per cent for April, lower than a fall of 2.33 per cent reported in March. The figure was in contrast with the median forecasts of 17 economists surveyed by VCCircle who were expecting a fall of 2.30 per cent.

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. Wholesale prices, which last declined in July 2009, have been softening for a year now.

Last month, while prices declined in manufactured products and fuel and power categories, prices of primary articles registered a growth of 0.9 per cent with the push coming from a rise in the prices of fruits and vegetables.

Unseasonal rains, which destroyed rabi crops, have had limited impact on the prices of commodities as the government released buffer stock to keep the prices in check. But with the monsoon predicted by Indian Meteorological Department (IMD) to be below normal, there is a potential upside risks to prices of food products.

Manufactured products, which accounts for two-thirds of the weight, declined 0.1 per cent in April. 

The downward trend in prices of manufactured goods indicates that demand is still sluggish and the recovery is yet to take hold. IIP figures released on Tuesday also showed that growth in the sector slowed down. The manufacturing sector has been growing slowly over the past year and figures published by HSBC for factory activity indicated that economy is fast losing traction. 

Fuel and power registered a decline of 1.7 per cent over the last month. Fuel and power accounts for 15 per cent of the weight in WPI series and is expected to rise given that crude prices crossed $68 per barrel just a fortnight ago.

Consumer price index, released on Tuesday, also declined for April. Inflation as measured by CPI declined to 4.87 per cent, raising expectations of a further rate cut. But lower earnings and rising prices of crude might keep the RBI from slashing rates further. 

RBi is expected to meet for the second bi-annual monetary policy review on June 2. 

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