Retail inflation scaled a 14-month high of 5.41% in November, while wholesale price inflation touched -1.99% during the month, clawing back from -3.81% in October but still remaining in the negative zone for 13 months in a row, showed the official data released on Monday. While food inflation in both the consumer price index (CPI) and wholesale price index (WPI) inched up in November, the fact that headline inflation in both the gauges haven’t yet shot up substantially suggest the impact of a broad-based fall in global commodity prices is yet to wane meaningfully. Even producers’ pricing power still remains dented, as shown by the persistent negative WPI inflation.
Most analysts believed retail inflation would still undershoot the central bank’s expectation of 5.8% by January 2016, given that food inflation still remained at 6.07% in November, compared with 5.25% in the previous month, despite a second straight year of a deficient monsoon and waning conducing base effects from September.
Still, they flagged two factors that could potentially jeopardise inflation calculations in the coming months: the recommendation of the Seventh Pay Commission for an average 24% pay hike for central government employees from January, which would raise demand-driven price pressures, and a likely increase in the interest rate by the US Federal Reserve this week. The consequent strengthening of the dollar against the rupee would drive up prices of commodities and hit a net importer like India. Some outflows from emerging markets like India are also anticipated, which could prevent the RBI from adopting a dovish monetary policy after fronting a 50-basis point cut in the repo rate in September.
The latest data showed while the rise in retail food inflation in November was aided by a 46.08% spurt in pulse prices from a year earlier, the WPI Food inflation also rose to 5.20% in November from 2.44% in the previous month, thanks to a spurt of 58.17% in pulse and 52.69% in onion prices. Even WPI vegetable inflation rose sharply to 14.08% in November, against 2.56% in the previous month.
“The expected reversal in prices of some perishables and pulses; the likely softness in global crude oil prices and, consequently, domestic fuel prices; as well as the waning of the adverse base effect would contribute to keeping CPI inflation largely steady at current levels during the remainder of 2015-16,” said Aditi Nayar, senior economist at ICRA.
Unlike the near closing of the gap between the headline and core WPI inflation in November, the difference between the headline and core CPI inflation widened during the month, thanks to different composition of these indices, she added. While the core WPI inflation touched -1.9% in November, against -2.1% in the previous month, the core CPI inflation rose to 4.6% from 4.4% in October.
The WPI fuel and power inflation hit -11.09% in November, compared with -16.32% in the previous month, reflecting subdued global crude oil prices, while retail fuel inflation touched 5.28% in November, against 5.32% in the previous month. WPI inflation in manufactured items stood at -1.42% in November, compared with -1.67% in the previous month.
The September WPI data has been revised downward marginally to -4.59% from -4.54% announced earlier.