After 17 months of falling, WPI now in positive zone at 0.34%

After 17 months of contracting, the wholesale price index (WPI) has finally entered a positive zone. 
The annual rate of inflation, based on monthly WPI, stood at 0.34 percent for April, 2016 as compared to -0.85 percent for the previous month and -2.43 percent during the corresponding month of the previous year.  The WPI comprises a basket of primary articles, fuel and power, and manufactured products which has the most weightage of nearly 65 percent.The primary articles index rose by 2.1 percent to 249.3 from 244.1 for the previous month. Prices of egg, fish and wheat were the only falling metrics in this group.The index for fuel and power rose by 1.7 percent to 175.4 from 172.4 for the previous month. Higher prices of aviation turbine fuel and oil and petrol contributed to the rise.Manufactured products index increased by 0.8 percent to 155.0 from 153.7 for the previous month. Ashutosh Kajoria of Federal Bank said bond markets have long stopped taking cues from WPI. Consumer price index is what they go by, Kajoria said. "We won't be seeing any change in bond markets, maybe a couple of basis point this way or that."Below is the transcript of Rupa Rege Nitsure and Ashutosh Khajuria’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.Latha: I have read out most of the numbers to you, manufacturing all told, is an uptick both month-on-month (M-o-M) and year-on-year (Y-o-Y).Nitsure: Absolutely, because my projection was 0.32 percent and it has come very close and as you rightly said, we had seen increase in commodity prices in the month of April. But more than that the import intensity of manufactured products in India is very high, so it directly gets translated into the cost-push pressures for manufacturing industry. I am also seeing some green shoots, not broad based, but if you look at the whole Index of Industrial Production (IIP) thing also, within that the basic goods category as well as the intermediate goods category, the uptick in production has been sustained for the last 4-5 months. So, compared to the beginning of FY16, beginning of FY17 appears to be more optimistic and if we really get good monsoon rainfall in terms of both quantum and distribution, then we will see decent growth in the second half of the current financial year.Latha: For us, the more important thing is how the markets will react to it. We have not seen much of the move in the bond prices, it was 7.45 and it has remained there. But, now does this completely put page to any expectations of a rate cut in June?Nitsure: RBI has been quite transparent and clear about it, because I do not think there is much scope for any rate action. As they have been saying, the core-core number has been quite firm and they are not comfortable with that. Also, price expectations are on the higher side. But one good thing RBI is doing is that that they are focusing more transmission through financial markets – the consumer price index (CPI) and bond markets which is actually helping the productive sectors more – than transmission through credit segments because as it is, we are seeing that post asset quality review (AQR), banks have also become more risk averse, structural problems still continue and there is not much elbow room left for them to cut lending rates. So, RBI will focus more on liquidity infusion majors and transmission through financial markets. And that augurs well for productive sectors.Reema: 7.45 on the bond markets. RBI will next be meeting on June 7. Should we expect no rate hike given the CPI as well as wholesale price index (WPI) print?Khajuria: Actually bond market has stopped looking at WPI for ages now because what bond market looks at is the CPI. But then it is a good news on one side, I would say, because 64 percent of weightage in WPI is to manufacturing and after maybe nearly two years, we are seeing manufacturing side to be in positive territory with about 73 basis points. That would help us to have a higher nominal gross domestic product (GDP). The challenge last year in FY16 had been that we had a very low nominal GDP and your revenues come from a nominal GDP because your excise duty or your any indirect tax including services tax and all are all functions of how the nominal GDP behaves.And as Latha was pointing out, on the services side, with the supply on services side more educational institutions on the health side, if competition comes in, we would see better situation, but that impacts CPI more. Here we have three broad categories: manufacturing at almost 64 percent, fuel about 14 percent and primary articles have less than one fourth of weightage, only 22 percent. Whereas more than 50 percent in CPI is on food side. So, looking at all these on bond market, my submission would be that we are not going to see any change, hardly maybe a couple of basis points this side or that side, because honestly, bond market has stopped looking at it since the present governor has come.