By Sunanda Natrajan
The Ministry of Commerce and Industry of India has confirmed a positive outlook for WPI inflation scenario in Q4 of the financial year 17-18 as the official WPI index for the month of February 2018 remains unchanged at previous month’s level of 115.8. While the manufacturing sector looked somewhat bleak based on FICCI’s latest review of the performance of the different sectors, the overall price and inflationary scenario look slightly promising in the months to come.
In the Indian context, Wholesale Price Index (WPI) inflation is used as the primary measure for ascertaining inflationary rates because unlike Consumer Price Inflation (CPI), WPI reflects price changes at an early distribution stage. The WPI index, in fact, includes all transactions at the initial point of bulk sale in the domestic market, and, a provisional WPI is released every month by the Office of the Economic Advisor using 2011-12 prices as the base year.
What’s the news?
The report published by the Government of India states that WPI inflation has eased to a six-month low of 2.84 percent in January even as vegetable prices remained high. For the month of February, the WPI inflation came down to 2.48 percent (provisional) compared to 2.84 percent in January and 5.51 percent in the same month in 2017. The build-up rate for this financial year was around 2.03 percent as compared to 4.92 percent in the corresponding period of the previous year.
There are chiefly three major groups that comprise the WPI index – primary articles, fuel and power and manufactured products with the assigned weights as 22.62 percent, 13.15 percent and 64.23 percent respectively. The index for ‘primary articles group’, which consists of four sub-groups, declined by 1.3 percent for the previous month. The index for ‘food articles’ group declined by 2 percent whereas the same for ‘non-food articles’ declined by 0.1 percent. Major causes for the decline are lower prices for fruits and vegetables (9 percent), tea and masur (4 percent each) and wheat (1 percent) among other articles, despite an uptick in prices of betel leaves, ragi and coffee. Contrastingly, in the minerals, and crude oil and petroleum group, some items such as floriculture, iron ore and copper concentrate, etc. have registered a significant increase in their prices which collated to give an overall index of 128.
The index for fuel and power group rose by 1.2 percent to 98.1 percent (provisional) and that for the important manufactured products group rose by 0.4 percent to 115.2 (provisional) as compared to 114.7 for the previous month. For the former sector, prime variations were shown by coal and mineral oils, both of which made up 1.2 percent and 1.8 percent respectively. Finally, in the manufactured products sector, while the manufacture of food products and beverages declined, the production of textiles and tobacco products showed a marginal rise.
What does this mean for the economy?
An overall analysis of the WPI inflation scenario reveals a hopeful economic sentiment for the Indian consumers. One may think that most food articles and other products of daily consumption have shown a decline in their prices, thereby making them more affordable for the common man. However, let’s not forget the impact of SGST and CGST on the prices of these products, hence making the overall impact more or less the same. Moreover, most of the products required in the manufacturing sector as intermediate goods, and even oil and petroleum, have recorded a spike in prices. Therefore, producers, wholesale buyers and industries, on the whole, can expect a rise in their production costs.
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