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Feb 14, 2013, 05.50 PM IST | Source: Moneycontrol.com

WPI inflation drops to 6.6% on non-revision in coal prices

CRISIL Research has come out with its report on WPI inflation. According to the research firm, in H1, 2013-14, core inflation is expected to remain benign due to the lagged impact of a sharp slowdown in GDP growth this year.

CRISIL Research has come out with its report on WPI inflation. According to the research firm, in H1, 2013-14, core inflation is expected to remain benign due to the lagged impact of a sharp slowdown in GDP growth this year.

WPI-based inflation declined sharply to 6.62 per cent in January 2013 from 7.18 per cent in December 2012, primarily due to decline in fuel and core inflation. This is the first time that WPI inflation has fallen below the 7.0 per cent mark since November 2009. Despite the increase in diesel prices in January, fuel inflation declined to 7.1 per cent in January from 9.4 per cent in the previous month as coal prices have not been revised since January 2012. Core inflation or non-food manufacturing inflation, an indicator of demand-side pressures in the economy also remained low at 4.1 per cent in January, significantly down from its peak of 5.8 per cent in August 2012. CRISIL Core Inflation Indicator (CCII) declined to 5.3 per cent in January from 5.5 per cent the previous month.

In H1, 2013-14, we expect core inflation to remain benign due to the lagged impact of a sharp slowdown in GDP growth this year. Weak demand-side pressures, in addition to higher agricultural output (assuming normal monsoons), a stronger rupee and lower international crude oil prices will lower average WPI inflation to 6.5 per cent in 2013-14 from 7.4 per cent forecast for the current fiscal year.

Inflation of administered fuels (coal, electricity, diesel, kerosene, LPG, lubricants) which constitute 80 per cent of the overall fuel index, declined to 9.4 per cent in January 2013 from 12.3 per cent in December, creating a sharp downward pressure on overall fuel inflation. This was primarily due to a decline in coal inflation to 0 per cent in January from 13.9 per cent in the previous month as prices have not been revised for the past one year.

Food inflation rose further to 11.9 per cent in January 2013 from 11.2 per cent in the previous month. Inflation in food-grains stood at 17.8 per cent in January 2013, reflecting a large build-up from 7.6 per cent in April 2012, as food-grain production has been adversely impacted by a delay in monsoons. Fruits and vegetable inflation also rose to 16.7 per cent from 13.2 per cent last month due to cold winters in certain parts of the country.

The increase in food inflation is leading to a divergence in trend between WPI and CPI inflation due to the higher weight of food items in the CPI. While the contribution of CPI core (overall CPI less food and fuel) has remained relatively stable, rising food inflation has pushed up overall CPI to 10.8 per cent in January 2013.

Disclaimer: CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL Limited has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. The Centre for Economic Research, CRISIL (C-CER) operates independently of and does not have access to information obtained by CRISIL's Ratings Division, which may in its regular operations obtain information of a confidential nature that is not available to C-CER. No part of this Report may be published / reproduced in any form without CRISIL's prior written approval.

The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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