Inflation falls - CPI high!

Set for deflation

The Wholesale price index recorded a decade low growth rate for the week ended 7 March 2009. The annual rate of inflation, calculated on point-to-point basis, stood at 0.44% for the week ended 07 March 2009 as compared to 2.43% for the previous week and 7.78% during the corresponding week of the previous year.

Laying with the global clues of falling oil and commodity prices the WPI based inflation moved steeply towards the southward direction. The higher base effect also cannot be ruled out.

The primary article index carrying a second highest weight in total WPI declined by 1.0 % to 245.5 from 248.1 for the previous week. The index of primary articles mainly comprises of food and non-food articles. The index for food articles group declined by 0.7% to 242.5 from 244.2 for the previous week due to lower prices of gram (5%), tea and fruits & vegetables (3% each), jowar and condiments & spices (2% each) and masur (1%). However, the prices of moong and fish-marine (2% each) moved up.

Another key driver that is the fuel, power, light and lubricant group index declined by 0.8% to 321.0 from 323.5 for the previous week due to lower prices of aviation turbine fuel and electricity for agriculture (8% each), light diesel oil (7%) and bitumen (2%). However, the prices of naphtha and furnace oil (3% each) and electricity for domestic, commercial and industry and railway traction (1% each) moved up.

The manufactured product index remained unchanged at its previous week's level of 199.2. The index for textile and machinery and machine tools grew by 0.1% for week ended 7 March 2009 compared to previous week. On a flip side index for textile group declined by 0.1 %to 140.5 from 140.4 for the previous week due to higher prices of hessian & sacking bags and hessian cloth (1% each). However, the prices of woollen yarn (6%) declined. In addition to this The index for chemicals and chemical products group declined by 0.2 % to 214.2 from 214.7 for the previous week due to lower prices of oxygen gas in cylinder (14%), liquid chlorine (3%), acetylene and titanium dioxide (2% each) and acid (all kinds), oxygen, methanol and soda ash (sodium carbonate) (1% each).

The current financial year started with single digit inflation number but reached to significantly higher level in June 2008 to October 2008. However the trend reversed from October 2008 and WPI based inflation fell steeply to 0.44% for the week ended 07 March 2009. Looking towards the current dismal growth in price level, India is set for deflation where we can see negative growth in price level. Below half a percent growth in inflation set a solid background for deflation.

However higher CPI and food inflation numbers can not be overlooked at this juncture. Inflation as measured by the consumer prices paid by industrial workers accelerated to 10.45% in January 2009. The consumer-price index for Agricultural Labourers and Rural Labourers increased 11.62% and 11.35%, respectively in January 2009 from a year earlier.

Though steep fall in WPI based inflation provides room for more monetary actions to ease liquidity and stimulate economic growth, the rising CPI cannot be ignored which is still running at above historic levels.