WPI inflation gains pace with electricity price revision
CRISIL Research has come out with its report on WPI Inflation. According to the research firm, fuel Inflation, which rose to 8.3% in August, is expected to rise further over September-October due to higher crude oil prices and the recently announced hike in diesel prices by Rs 5/litre.
September 14, 2012 / 18:23 IST
CRISIL Research has come out with its report on WPI Inflation. According to the research firm, fuel Inflation, which rose to 8.3% in August, is expected to rise further over September-October due to higher crude oil prices and the recently announced hike in diesel prices by Rs 5/litre.
WPI-based inflation rose to 7.6% in August after having fallen to 6.9% in July. The resurgence in inflation was largely due to a revision in electricity prices. Electricity price revision raised administered fuel inflation to 7% in August from 4% a month earlier. Overall fuel Inflation, which rose to 8.3% in August, is expected to rise further over September-October due to higher crude oil prices and the recently announced hike in diesel prices by Rs 5/litre.The direct one-time impact of the revision in diesel prices on WPI inflation is expected to be around 60 basis points. As prices have been revised in mid-September, only a partial impact is likely to be seen next month while full impact will play out in October. The upward price revision of diesel as well as a move to reduce the subsidy burden on LPG paves the way for the Reserve Bank of India to cut the repo rate going ahead.Among manufacturing industries, prices of chemical and food products rose sharply on the year-on-year basis, taking manufacturing inflation above the 6% mark for the first time since February 2012. Prices of manufactured food products, led by a surge in sugar prices, rose by 9.0% on a year-on-year basis from 6.3% last month. Moreover, core inflation, both non-food manufacturing inflation as well as CRISIL core inflation indicator, rose to a 6 month high despite slowing GDP growth. Primary food inflation fell below the double digit mark to 9.1 to 10.4% in July. The adverse impact of delayed monsoons however, has still not been fully factored in.Overall rainfall deficiency has come down to 8% of long period average, as of 12th September. The distribution of rainfall however, continues to remain uneven. North-West India, which has the largest share (45.2%) in national foodgrain production, is the one of the worst affected with rainfall deficiency still at 14%.The delay in monsoons has already impacted sowing as the sowing season is nearly over. The sown area under coarse cereals (jowar, bajra, maize) and pulses is 20% lower than a normal monsoon year. This is comparable with the sown area (79.7% of normal) for coarse cereals during 2009- an all-India drought year when food inflation surged to 15.2%. In case of pulses, the sown area is 11% lower than a normal monsoon year as against 18.7% in 2009.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.To read the full report click on the attachment 
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