October WPI hits multi-year low of 1.77%

Amid other components, primary articles inflation stood at 1.43 percent against 2.18 percent, while non-food articles shrunk to -1.41 percent against 0.52 percent (MoM).

Even the consumer price inflation data for October cooled off to its all-time low of 5.52 percent, the lowest since India started computing consumer price index (CPI) in January 2012, led by lower food prices and fuel costs.

Aditi Nayar, Senior Economist, ICRA, said she had forecast overall WPI at around 2.1 percent and that had factored in a very flat food inflation number. “My guess is that core is possibly still pretty flat compared to last month. Thus, in that sense, despite the fact that we have had this commodity price fall, if core inflation is flat, we still remain where we were,” she said.

According to Nayar, the Reserve Bank has already made it clear that it is looking at CPI and not WPI. So as far as the nominal anchor having been set as CPI, WPI in that sense does not have that much value in terms of looking at the monetary policy decisions.

“Ever since the CPI was announced as nominal target, for households, the WPI doesn’t matter. What matters to them (RBI) is CPI or basic elements of food, clothing and housing. I think the RBI clearly wants to target inflationary expectations in a very sustainable and durable manner,” she said.

Vivek Rajpal, Rates Strategist at Nomura India, said WPI numbers reinforces the fact that India is in a gradual or “rather in a disinflation trend” but with RBI looking at CPI, he does not see any immediate monetary easing. He expects bond yields to continue rally.

“In fact I expect 10-year bond to touch 8 percent probably relatively soon by January or so which will be a reflection of the disinflation trend. However, I think it is the flattening of yield curve, which will persist if RBI continues to lag the market expectations,” he said.

Gaurav Kapur, Senior Economist at Royal Bank of Scotland NV, said the number is lower than expectation and that the inflation momentum is losing its steam. He feels the non-food articles may have fallen on account of base effect or the fact that globally commodity prices have come down sharply.

“Economic activity in Q2 has been on a slower side. Clearly from 5-7 percent growth in Q1, all numbers have pointed towards almost, if not more, but at least another 0.5-0.7 percent lower growth in Q2, be it corporate earnings or IIP numbers. So essentially I think slow demand is reflecting here. So I would take this number with a bit of a reservation because base effect can throw things notoriously,” he said.

On a month-on-month basis:

Food articles index is down 1.3 percentPrimary articles index down 1.2 percent Non-food articles index down 2 percent Fuel and power group index down 1.3 percent Manufactured products index remains unchanged All commodities index down 0.59 percent Vegetable index down 10.07 percent

Posted by Kankana Roy Choudhury