Headline inflation declined for the fourth straight month in a row, falling a steep 2.06 per cent during February, as the prices of manufactured products, fuel and power and food products softened. However, during the month onions, pulses and protein-rich items such as egg and milk became dearer, according to the data released by the ministry of commerce and industry.
According to the data, the headline inflation, as gauged by wholesale price index (WPI), during the previous month had fallen 0.39 per cent while it had declined 0.50 per cent in December. The WPI for February 2014 was 5.03 per cent. During the April-February period, the inflation declined 2.50 per cent compared to a build up rate of 5.53 per cent in the corresponding period of the last fiscal. WPI inflation for December was revised lower from 0.11 per cent to -0.5 per cent.
Debopam Chaudhuri, VP- Research & Chief Economist, ZyFin Research
The steep deceleration in wholesale prices was surprising. However, a decline in volatile Food and Fuel prices is an encouraging sign. The decline in wholesale prices should trickle down to retail prices soon, keeping CPI within bounds. There is still no reason at this stage to assume a deflationary trend in India akin to an evolving global price trajectory.
Even as the index for food articles group declined by 0.8 per cent, pulses grew costlier by 14.59 per cent as against 12.34 per cent in January while onion prices grew 26.58 per cent compared to a fall of 1.90 per cent in the previous month.
Indranil Pan, Chief Economist, Kotak Mahindra Bank Limited
Headline WPI continued in the negative territory, but in the Indian context we should stop short of calling this deflation. This is just a dis-inflation, created out of a sharp yoy drop in global commodity prices in the midst of not too strong depreciation pressures on the INR. For instance, oil prices have gone down by 48% from August 2014 onwards, while the INR has depreciated by 2.7% in the same period, thereby proving to be beneficial for WPI inflation. The pace of drop in WPI inflation is also stronger than CPI inflation as WPI inflation incorporates more tradeables than CPI inflation which is heavily loaded with service sector elements. The drop in core WPI inflation to close to zero is also probably indicative of the low pricing power by companies even as the commodity price drop remains the crucial factor for the sharp drop in the WPI. In terms of policy, clearly the CPI overrides the WPI so far as RBI’s monetary policy decisions are concerned. The Urjit Patel Committee report had also noted that there is a negligible pass-through of WPI core inflation to the CPI core inflation. Thus, the relevance of the negative WPI seems to be quite insignificant from a monetary policy action perspective. We reiterate our call of one more 25 bps cut by the RBI at the June policy meeting.
The index for fuel and power declined 14.72 per cent in February as against a decline of 10.69 per cent in the previous month. Similarly, the prices of manufactured products also moderated, growing just 0.33 per cent during the month as compared to inflation of 1.05 per cent in January and 1.44 per cent in December.
Sugar prices declined 1.98 per cent as against 1.25 per cent in January while that of edible oils declined 0.75 per cent as compared to 0.88 per cent in the previous month. Rate of price rise in products including man-made textiles, cotton textiles, wood and wood products, paper and paper products, chemicals and chemical products also moderated during the month.