Inflation Continues to be Negative in February: WPI INFLATION at (-)2.06%
Wholesale Price Index (WPI) for the month of February, 2015 fell to its lowest at (-)2.06% as compared to (-)0.39% in the previous month. It is lowest inflation level recorded in almost a decade. December WPI also got revised to (-)0.5 from 0.11%. The food inflation fell marginally to 7.74% as compared to 8% in the previous month. The fuel and power segment was the biggest contributor to the fall in wholesale prices. In this category, price declined 14.72% in February against 10.69% in January.Wholesale Inflation takes into account the prices paid by the manufacturers on the goods imported and used as inputs. The main reason behind the WPI going down is lowering of the Crude prices in the International Market and the Dollar/Rupee stability seen over a period of time. On month to month basis Primary articles declined to 1.43% and inflation in manufactured products declined to 0.33%. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.
Consumer Price Index (CPI) however rose to 5.37% in the month of February, 2015. With the Crude prices hitting an all time low in the International Market and prices of essential food prices remaining in check it seems that RBI is on course with its Short and Mid term Inflation target. However the rise in CPI is contributed due to higher weightage being given to Food Items, which is more logical in my opinion as reflects the true impact of inflation on Common People. Although the WPI has deflated but Common people won’t benefit much from it.
Factory output rose to 2.6% in January,2015 as compared to 1.7% in December,2014. This growth was contributed to the fact that manufacturing Sector grew by 3.3% during the same period. The growth needs to be consistent over a period of time to see manufacturing sector reviving itself.
RBI had revised CPI for March, 2015 to 6% and seems to be on course.
RBI wants to ease Consumer Inflation to 4% very soon.
But given the constant rise in CPI, RBI will resist any Industry demand for rate cut as of now. As it has already set inflationary targets for itself to achieve. More over Food Inflation is expected to rise which could impact the CPI.