Growth in food inflation adding stress
The official Wholesale Price Index for all commodities for the week ended 1 August 2009 rose by 0.1% to 237.2 from 236.9 for the previous week. The annual rate of inflation, calculated on point-to-point basis, stood at -1.74 % for the week ended 01 August 2009 as compared to -1.58 % for the previous week and 12.91% during the corresponding week of the previous year.
The index of primary articles rose by 0.1% to 262.5 from 262.2 for the previous week. The two major contributors that are food and non-food articles registered a growth in the first week of August 2009. The index for food articles group rose by 0.2% to 261.4 from 261.0 for the previous week due to higher prices of barley, jowar and gram (2% each) and condiments and spices, arhar and fruits & vegetables (1% each). The index for non-food articles group rose marginally to 241.6 from 241.5 for the previous week due to higher prices of raw silk (3%) and fodder and gingelly seed (1% each).
The fuel power light and lubricant index group rose marginally to 338.3 from 338.2 for the previous week due to higher prices of aviation turbine fuel (2%).
Going further the manufactured product group rose by 0.1% to 205.9 from 205.6 for the previous week. Among the group the index for food product, beverages tobacco and tobacco products, textiles, chemicals and chemical products, non-metallic mineral products rose from the previous week level. The index for food products group rose by 0.1% to 231.6 from 231.3 for the previous week due to higher prices of imported edible oil (5%), unrefined oil (3%) and khandsari and sugar (1% each). The index for chemicals and chemical Products' group rose by 0.1% to 227.4 from 227.1 for the previous week due to higher prices of purified terephthalic acid (pta) (13%) and benzene (9%).
However index for basic metals alloys and metal products group declined by 0.1% to 255.0 from 255.2 for the previous week due to lower prices of basic pig iron and foundry pig iron (2% each) and other iron steel (1%). The index for machinery and machine tools group also declined by 0.2% to 171.6 from 171.9 for the previous week due to lower prices of acsr conductors (20%), cranes (5%).
The constant declined in WPI is mainly due to higher base effect as the prices of essential commodities in real market place are at elevated levels. Moving forward, growing uncertainty about the monsoon is adding pressure on food production, which will further boost inflation in long term. Food articles recorded 8.57% growth in June 2009 compared with 6% in the same month last year. In short, monsoon is playing a critical role in the outlook of inflation specially in food inflation.
The survey of professional forecaster of RBI has estimated higher inflation for year to come. According to the survey, WPI inflation on a year over year basis in the second, third and fourth quarters of current financial year is estimated at (-) 1.4%, 2.5% and 5.4%, respectively. Forecasters have assigned highest 41.2% chance that inflation will be in the range 4.0-4.9% in 2009-10 and highest 39.8% chance that it will fall in 5.0-5.9% range in 2010-11. Meanwhile, the RBI has projected 5% inflation for the year 2009-10.
