The wholesale price index?s turn into the negative terrain for the first time in more than three decades has been expected for a while now-the WPI has hovered below the 1% mark for as many as 12 weeks. Though a landmark statistical event, not too much should be made of this, as it is more of an anomaly due to the bloated base year figures for the week that had moved up by four benchmark points after the increase in oil prices through government fiat last year. In fact, the detailed WPI numbers show that mineral oil prices have fallen by a record 19% during the most recent week as compared to a 9.6% fall in the previous week, even as global oil prices are picking up much faster than expected.
Apart from such contrived factors that led to the fall in WPI, the other reason for caution is that the impact of the fall has been muted by the relatively high consumer prices, which still remain close to double-digit levels, especially the high food prices. The latter phenomenon is especially curious as the wholesale price trends show that price of foodgrains continue to go up beyond reasonable levels despite the excessively large stocks of rice and wheat. Numbers show that foodgrain prices have steadily gone up by more than three percentage points over the fiscal year and touched a peak rate of 14% in end of May, after which it has mildly softened to 12.8% in the most recent week. However, these outliers, like the contrived fall in oil prices and the excessively high food prices, should not distract us from the fact that inflation has touched rock-bottom, as is evident from the fall in manufactured good prices to zero in the current week after hovering at around the 1% mark for a dozen odd weeks. In fact, the weak demand for manufactured products has even caused a free fall in prices of important investment goods like machinery and intermediate products like chemicals in the last few weeks. The worst-hit was basic metals and alloys where the prices are now falling by as much as 14%. The revival of demand across the broad industrial spectrum calls for the supply of credit at reasonable cost, something that the monetary authorities have chosen to ignore for too long, but cannot afford to anymore, given that inflation is certainly less of an issue, and that firm recovery remains elusive.
