The headline inflation has started to soften after staying in double-digits for five months
up to July 2010, reflecting favourable base effects and some moderation in manufacturing
price pressures. Despite a normal monsoon inflation remains above the comfort level
mainly led by food inflation, which seems to have assumed structural character. The new
series on Wholesale Price Index (WPI), with base shifted from 1993-94 to 2004-05, gives
a better representation of the more recent production and consumption pattern, without
any major difference in the overall trends in inflation. The inflation pressures persist and
further moderation would be necessary for easing the concerns for the conduct of monetary
policy. Different measures of consumer price inflation fell below double digit levels after
more than a year, but still remain elevated tracking high food and fuel inflation.
VI.1 With headline inflation measured
by WPI (base 2004-05) remaining in double
digits for consecutive five months from
March to July 2010 and the inflation
process turning more generalised, the
Reserve Bank’s balance of policy shifted
from ‘managing the recovery’ to containing
inflation and anchoring inflationary
expectations. This was reflected in the
calibrated normalisation of monetary policy
between January and September 2010.
VI.2 In the second quarter of 2010-11,
headline inflation exhibited some
moderation but remained elevated. The
pace of increase in non-food manufactured
products prices has moderated in recent
months indicating some slowing down of
the pace of generalisation of inflation as
well as gradual stabilisation of price
pressures. Food inflation, however,
continues to remain high despite a normal
monsoon, as price pressures have
amplified for certain non-cereal items like
milk, eggs, fish and meat whose output is
less responsive to monsoon. Significant
increase in primary articles and minerals
prices along with building up pressures in
a number of commodities globally pose
upside risks to domestic inflation. Though various measures of consumer price
inflation declined to single digits after more
than a year, they continue to remain high.
As headline inflation still remains elevated,
containing inflation and anchoring
inflationary expectations would continue to
be a challenge for monetary policy during
2010-11.
Global Inflation
VI.3 The global inflation environment
continues to remain moderate with rising
divergence in inflation trends between
advanced economies, which face subdued
inflationary environment as recovery
remains weak, and emerging and
developing countries where signs of pickup
in inflation coincided with their stronger
recovery. The October 2010 World
Economic Outlook of the IMF predicts
modest increase in prices in advanced
economies in 2010 with consumer price
inflation expected to increase from near zero
in 2009 to 1.4 per cent in 2010 and 1.3 per
cent in 2011. Inflation in emerging and
developing economies, however, is
projected to accelerate to 6.2 per cent in
2010 from 5.2 per cent in 2009, before
decelerating back to 5.2 per cent in 2011. Excess capacity in most advanced
economies and sluggish labour markets
with unemployment rate likely to remain
over 8 per cent through 2009-11 is expected
to keep price pressures subdued. Soft global
inflationary environment may prevail for
some more time even though most
advanced economies experienced some
increase in headline inflation in recent
months, largely from increasing energy and
food prices. Core inflation in advanced
economies, however, has remained
subdued, indicating absence of demand side
pressures on prices. This provides them the
space for continuing with expansionary
monetary policy to support the recovery
(Chart VI.1 a).
VI.4 Year-on-year consumer price
inflation in the OECD countries, which
increased to 2.0 per cent in May 2010,
moderated to 1.6 per cent in August 2010
following a decline in core inflation
(excluding food and energy to 1.2 per cent
in August 2010 from 1.6 per cent in January
2010). Private consumption demand
remains relatively weak in the OECD
countries, which along with lower capacity utilisation levels indicates that the low
inflation conditions may continue for an
extended period of time.
VI.5 Inflation in most of the EMEs
increased in recent months, but remains
moderate (Chart VI.1b). Significant
increases in international commodity prices
from their historic low levels recorded in
early 2009 translated into increases in
inflation as the base effect of high prices in
the first half of 2008 waned. The impact of
any increase in international commodity
prices on inflation is more in the case of
developing countries as their consumption
baskets have larger shares of commodities,
especially food and oil. The divergent
nature of the global recovery, with a
relatively strong recovery and faster closing
of output gaps for the EMEs, also poses a
challenge for emerging markets. As
international prices of commodities are now
responding more to increase in growth in
EMEs, stronger growth could amplify the
risk of high imported inflation.
VI.6 Policy rates in advanced economies
continue to remain near zero/very low levels as the concerns on sustainability of
recovery became more prominent in the
second quarter of 2010-11. Assessment of
most central banks pointed towards absence
of pressures on inflation from demand side
during the medium-term. As the pace of
recovery was slowing, the Bank of Japan
decided to reduce the policy rate. Israel and
Canada, on the other hand, increased their
policy rates in Q2 of 2010-11, recognising
the inflation risks going forward. Among
the emerging economies, China and Thailand raised their policy rates during Q2
of 2010-11 while South Africa reduced it
(Table VI.1).
|
Table VI.1: Policy Rates and Inflation in Select Economies |
(Per cent) |
Country/
Region |
Key Policy
Rate |
Policy Rate
(as on Oct. 20, 2010) |
Changes in Policy
Rate (basis points) |
CPI Inflation
(y-o-y) |
Apr. 09 -
Aug. 09 |
Since
Sep. 09 |
Sep.
2009 |
Sep.
2010 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
Developed Economies |
Australia |
Cash Rate |
4.50 (May 5, 2010) |
(-) 25 |
175 |
1.3# |
3.8# |
Canada |
Overnight Rate |
1.00 (Sep. 8, 2010) |
(-) 25 |
75 |
-0.9 |
1.9 |
Euro area |
Interest Rate on
Main Refinancing Operations |
1.00 (May 13,2009) |
(-) 50 |
0 |
-0.3 |
1.8 |
Japan |
Uncollateralised Overnight
Call Rate |
0.00 to 0.10 (Oct. 5, 2010) |
0 |
(-) 10 |
-2.2* |
-0.9* |
UK |
Official Bank Rate |
0.50 (Mar. 5,2009) |
0 |
0 |
1.1 |
3.1 |
US |
Federal Funds Rate |
0.00 to 0.25 (Dec.16,2008) |
0 |
0 |
-1.3 |
1.1 |
Developing Economies |
Brazil |
Selic Rate |
10.75 (Jul. 21, 2010) |
(-) 250 |
200 |
4.3 |
4.7 |
India |
Reverse Repo Rate |
5.00 (Sep. 16, 2010) |
(-) 25 |
175 |
11.6 |
9.8 |
|
Repo Rate |
6.00 (Sep. 16, 2010) |
(-) 25 |
125 |
|
|
|
|
|
|
(100) |
|
|
China |
Benchmark 1-year |
5.56 (Oct.19, 2010) |
0 |
25 |
-0.8 |
3.6 |
|
Lending Rate |
|
0 |
(150) |
|
|
Indonesia |
BI Rate |
6.50 (Aug. 5, 2009) |
(-) 125 |
0 |
2.8 |
5.8 |
Israel |
Key Rate |
2.00 (Oct. 1, 2010) |
(-) 25 |
150 |
2.8 |
2.4 |
Korea |
Base Rate |
2.25 (Jul. 09, 2010) |
0 |
25 |
2.2 |
3.6 |
Philippines |
Reverse Repo Rate |
4.00 (Jul. 9, 2009) |
(-) 75 |
0 |
0.6 |
3.5 |
Russia |
Refinancing Rate |
7.75 (Jun. 1, 2010) |
(-) 200 |
(-) 225 |
10.7 |
7.0 |
South Africa |
Repo Rate |
6.00 (Sep. 10, 2010) |
(-) 250 |
(-) 100 |
6.1 |
3.2 |
Thailand |
1-day Repurchase Rate |
1.75 (Aug. 25, 2010) |
(-) 25 |
50 |
-1.0 |
3.0 |
#: Q3. *August.
Note: 1. For India, data on inflation pertain to CPI for Industrial Workers.
2. Figures in parentheses in column (3) indicate the dates when the policy rates were last revised.
3. Figures in parentheses in column (4) and (5) indicate the variation in the cash reserve ratio during the period.
Source: International Monetary Fund, websites of respective central banks. |
Global Commodity Prices
VI.7 During August-September 2010,
international commodity prices increased
again on account of the supply disruptions
in many commodities. Commodity prices
earlier recorded some decline during May-
June 2010, as concerns over euro area recovery and sustainability of high growth
in demand in emerging economies spilled
over to commodity markets. (Chart VI.2).
VI.8 Uncertainties in global recovery
impacted significantly on crude oil prices.
The average crude oil price for Q2 of 2010-
11 was US$ 75.5 per barrel, lower than US$
78.2 per barrel recorded in Q1. However,
crude oil prices firmed up in recent weeks
and the WTI crude prices were at US$ 82.2
per barrel as on October 28, 2010.
According to the US Energy Information
Administration, despite a slight reduction
in projected global demand growth, oil
prices may firm up due to gradual reduction
in global oil inventories.
VI.9 International food prices, which
moderated marginally during January-
June 2010, firmed up in recent months
(Chart VI.3). Weather related supply
disruptions in a number of commodities
contributed to the increase in prices. Wheat
prices increased by 72 per cent during
June-September 2010 because of weather
related output losses in Russia and other
producers and Russia’s subsequent ban on grain exports. Coarse cereal prices also
increased on account of expected smaller
crops in the US and higher export demand
given the tight wheat market condition.
Edible oils prices were affected due to
soyabean losses from drought in the EU
and the Black Sea region, and concerns
regarding next season’s crop in South
America. Cotton prices have increased on
account of a decline in output reflecting
floods in Pakistan, which is a major
producer and exporter of raw cotton. Metal prices have also increased as China
reduced the production. Simultaneous
increase in prices of a number of
commodities poses the risk of high
imported inflation in those commodities,
particularly where the domestic prices are
more responsive to global trends.
Administrative measures to mitigate the
adverse impact of supply disruptions by
countries could also lead to restrictive
trade practices, which could further push
up global prices.
|
Inflation Conditions in India
Wholesale Price Inflation
VI.10 WPI inflation increased at a faster
pace since November 2009 to reach 11.0 per cent (year-on-year) by April 2010 and
remained elevated in the first quarter of
2010-11 (Chart VI.4 a and b). During May-
August 2010, however, some moderation
in inflation was visible, indicating that
inflation might have peaked off (8.6 per
cent provisional in September 2010 as per
the new series of WPI with base 2004-
05=100). The pace of increase in WPI,
which was secular since March 2009, also
seems to have declined significantly in
recent months and the financial year buildup
in inflation is seen to be lower than the
previous years (Chart VI.4 c). This was
also reflected in low month-on-month
seasonally adjusted annualised inflation,
except in September 2010 (Chart VI.4 d).
New Series of Wholesale Price Index1
VI.11 On September 14, 2010, the new
series of WPI with base year 2004-05 was
introduced replacing the 1993-94 series. The
new series reflects some shifts in the weights
towards fuel and power and manufactured
products from primary articles. Although
changes in the weights for manufactured
products are not substantial for the group as
a whole, there has been a tilt in the weights
towards non-food manufactured products,
besides substantial increase in the new items
added/revised that reflects changes in the
production pattern over a decade (Table
VI.2). Thus, in terms of the level of the price
index, the difference between the old and
the new series is primarily contributed by
the manufactured products group, which
reflects the impact of large number of new
items included in this group (including
revisions in the existing items). The number
of commodities included in the new WPI
series has increased from 435 to 676, even
after dropping/revising 176 items from the
old series. The total number of price
quotations for WPI has also been increased
substantially from 1,918 in the old series to
5,482 in the new series.
Table VI.2: Major Changes in the Weights and Commodities in the Revised WPI Series |
Items |
Weights |
No. of Commodities |
New Series
(Base:2004-05) |
Old Series
(Base:1993-94) |
New Series
(Base:2004-05) |
Old Series
(Base:1993-94) |
New Items
added/revised |
1 |
2 |
3 |
4 |
5 |
6 |
All Commodities |
100.00 |
100.00 |
676 |
435 |
417 |
I. Primary Articles |
20.12 |
22.03 |
102 |
98 |
11 |
Food |
14.34 |
15.40 |
55 |
54 |
1 |
Non-Food and Minerals |
5.78 |
6.63 |
47 |
44 |
10 |
II. Fuel and Power |
14.91 |
14.23 |
19 |
19 |
0 |
III. Manufactured Products |
64.97 |
63.75 |
555 |
318 |
406 |
Food |
9.97 |
11.54 |
57 |
41 |
25 |
Non-Food |
55.00 |
52.21 |
498 |
277 |
381 |
VI.12 The average overall inflation rate,
according to the new series and the old series,
is about 5.5 per cent for the past five years
(i.e., 2005-06 to 2009-10) indicating that there
is not much difference in inflation between
the two series. Occasional divergence in the
inflation between the new and the old series
was observed during different periods and in
terms of rate of inflation (y-o-y), the
maximum difference in any month has been
about 1.8 percentage points. The differences
in inflation across commodity groups,
however, have been larger. Higher food
inflation (both primary and manufactured) in
the new series for 2010-11 is largely offset
by the lower inflation in the non-food
manufactured products, as a result of which
the magnitude of the difference in the headline
inflation remains relatively low (Chart VI.5).
The inflation in non-food manufactured
products, which is particularly significant for
assessment of generalisation and the role of
demand-side factors, suggests: (a) some
moderation in recent months as per the trends
in both series, and more importantly, (b) the
inflation as per the new series is lower, in the
range of 1.4 to 2.2 percentage points during
2010-11 (up to July), relative to the old series, which is largely due to a substantial change
in the basket with the introduction of a number
of new items (406 manufactured products
added/revised).
|
VI.13 The new series of WPI, thus, marks
a major change in terms of scope and
coverage of commodities and is more
representative of the changing underlying
economic structure. It adequately captures the present underlying economic structure,
which is consistent with changes in the
production and the consumption pattern. The
non-food manufactured group covers a larger
basket in the new series, which includes
electronic items and communication
equipments, whose prices have declined
overtime. The food inflation in the new series
is, however, higher than in the old series,
which reflects significant shifts in the pattern of household consumption in favour of
protein-rich items such as egg, meat and fish,
milk and pulses, where price rise has been
high with changing income levels and supply
response does not appear to be
commensurate with the rising demand.
VI.14 The month-over-month momentum
(seasonally adjusted, annualised) in both
the series exhibits similar pattern, even
though in recent months the new series
showed generally softening bias, unlike the
old series. However, price level again increased in September 2010 on the back
of food price pressures (Chart VI.6).
VI.15 Although the WPI inflation exhibited
some decline in recent months, it still remains
significantly high. The contribution of food
inflation to overall inflation has declined since
January 2010 as the manufactured food
products inflation declined, led by sugar. The
contribution of the non-food manufacturing
group remained more or less the same during
the last few months with marginal decline in
August and September 2010 (Chart VI.7).
VI.16 The key commodities, which
continue to contribute significantly to
headline inflation, are mineral oils, food
articles like milk, egg, fish and meat,
minerals and textiles (Chart VI.8). Increase
in food prices continues to have a
significant impact on overall inflation as
primary food article inflation alone
contributed about 31 per cent to overall
inflation in September 2010.
VI.17 Inflation across different sub-groups
followed the trend in headline inflation and
exhibited moderation in recent months (Chart VI.9). The decline in food inflation
was largely led by manufactured food
products. The increase in manufactured nonfood
products inflation seems to have
contained and fuel inflation also exhibits
moderate decline more on account of the
base effect of last year’s increase in prices.
VI.18 Inflation in essential commodities
group, which remained significantly
divergent from the overall trend during
2009-10, has also moderated (Chart
VI.10a). The convergence of different subcomponents
of inflation, due to both the decline in food inflation and high non-food
inflation points to the generalised nature of
inflation process in recent months.
VI.19 Amongst the major groups, primary
articles inflation, y-o-y, declined since
February 2010 but exhibited some uptrend
in September 2010 (Chart VI.10b). The
decline in primary articles inflation,
however, was more on account of the base
effect of sharp increases in prices recorded
a year ago. Primary food articles inflation
(y-o-y) moderated to 13.8 per cent for the
week ended October 16, 2010 from the peak
of 22.9 per cent in mid- June 2010. However,
since March 2010, primary articles index of
WPI has increased by 8.6 per cent (as on
October 16, 2010) led by food articles.
VI.20 Presently, an important concern from
the point of view of inflation management is
the downward rigidity in the primary food
articles prices even after a good monsoon.
With a normal monsoon, it was expected that
the prices of food articles would moderate
substantially. However, food articles inflation
continues to remain in double digits. It needs
to be emphasised that with increase in income
levels, the consumption basket is getting diversified more in favour of non-cereal items
such as milk, vegetables, fruits, meat, poultry
and fish, which are important from the
nutritional angle. The decomposition of food
inflation indicates that during the recent
period the key drivers of food inflation are
non-cereals. In fact, since November 2009,
much of the food inflation is contributed by
protein rich items like milk, eggs, fish and
meat, which are less responsive to monsoon
(Chart VI.11). About two thirds of the
primary food inflation (y-o-y) currently
emanates from the two sub-groups, milk and ‘egg fish and meat’. Inflation in pulses,
however, remains moderate largely reflecting
the base effect of very high prices recorded a
year ago. Thus, despite a decline in the
contribution of cereals and vegetables to
inflation in recent months, food inflation
continues to remain firm.
|
VI.21 The sustained high level of food
prices, especially of protein-based items,
whose share in consumption basket has
increased over time along with increases
in income, points to the risk that food price
inflation could acquire a structural character
and become more persistent. Given the tight demand-supply conditions in food
globally and prospects of firming up of
commodity prices, import as an option to
control food inflation may not be available
for most commodities. This calls for the
effective management of supply
augmenting measures in the medium term
to address the food inflation.
VI.22 Non-food primary articles inflation
also remains high at above 20 per cent,
reflecting the revision in sugarcane index by
about 50 per cent in March 2010 and increase
in iron ore and raw cotton prices. Iron ore
prices have doubled since December 2009,
while raw cotton prices increased by more
than 20 per cent in September 2010. Increase
in raw cotton and sugar prices in recent
months in the wake of increase in global
commodity prices, despite significant
increase in domestic production, points
towards the risk of spillover even with
favourable production conditions.
VI.23 Fuel group inflation is influenced
both by decisions of the Government on the
administered prices and movements in
freely priced petroleum products prices. As
on a monthly average basis crude prices (Indian basket) have remained range bound
between US $ 75-85 during 2010-11 so far,
the non-administered prices under the fuel
group remained more or less the same.
Motivated by fiscal as well as fuel
efficiency considerations, the Government
increased the price of diesel (by Rs.2 per
litre), PDS kerosene (by Rs.3 per litre) and
domestic LPG (by Rs.35 per cylinder) and
deregulated petrol prices on June 25, 2010.
The direct impact of these measures was
about 0.9 percentage point increase in WPI
inflation, with the indirect impact on prices
through input cost escalation with a lag
likely to raise the full impact to about 2
percentage points, assuming partial passthrough.
As the deregulated petrol prices
remained almost constant during the period
July-September 2010 tracking the trends in
international crude prices, the pressure on
headline inflation remained contained. Fuel
group inflation, nevertheless, continues to
remain in double digits (11.3 per cent as on
October 16, 2010).
VI.24 Manufactured products inflation has
declined since April 2010, led by decline in
prices of food products. The manufactured
products price index, however, remains almost the same during 2010-11 so far
indicating that the decline in inflation was
largely contributed by the high base of the previous year. Non-food manufactured
products inflation declined to 5.0 per cent
in September 2010 (Table VI.3).
Table VI.3: Wholesale Price Inflation in India (2004-05=100) (year-on-year) |
(Per cent) |
Commodity |
Weight |
2009-10
(March) |
2010-11
(September) |
Financial Year
(over March 2010) |
Inflation |
C* |
Inflation |
C* |
Inflation |
C* |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
All Commodities |
100.0 |
10.2 |
10.2 |
8.6 |
8.6 |
3.9 |
3.9 |
1. Primary Articles |
20.1 |
22.2 |
4.9 |
17.5 |
4.1 |
8.3 |
2.0 |
Food Articles |
14.3 |
20.6 |
3.3 |
15.7 |
2.7 |
9.4 |
1.6 |
i. Rice |
1.8 |
8.1 |
0.2 |
4.6 |
0.1 |
0.9 |
0.0 |
ii. Wheat |
1.1 |
14.7 |
0.2 |
8.7 |
0.1 |
0.1 |
0.0 |
iii. Pulses |
0.7 |
25.0 |
0.2 |
5.1 |
0.1 |
-0.1 |
0.0 |
iv. Vegetables |
1.7 |
13.6 |
0.2 |
6.0 |
0.1 |
37.1 |
0.6 |
v. Fruits |
2.1 |
18.2 |
0.4 |
12.0 |
0.3 |
3.6 |
0.1 |
vi. Milk |
3.2 |
24.9 |
0.9 |
24.0 |
0.9 |
5.8 |
0.2 |
vii. Eggs, Fish and Meat |
2.4 |
35.5 |
0.9 |
30.9 |
0.9 |
15.2 |
0.5 |
Non-Food Articles |
4.3 |
20.4 |
0.9 |
18.2 |
0.8 |
4.6 |
0.2 |
i. Raw Cotton |
0.7 |
20.0 |
0.1 |
27.5 |
0.2 |
14.0 |
0.1 |
ii. Oilseeds |
1.8 |
6.7 |
0.1 |
5.2 |
0.1 |
3.1 |
0.1 |
iii. Sugarcane |
0.6 |
53.3 |
0.3 |
53.3 |
0.3 |
0.0 |
0.0 |
Minerals |
1.5 |
37.9 |
0.8 |
28.5 |
0.6 |
7.3 |
0.2 |
i. Crude Petroleum |
0.9 |
58.3 |
0.5 |
9.7 |
0.1 |
-1.1 |
0.0 |
2. Fuel and Power |
14.9 |
13.8 |
2.1 |
11.1 |
1.7 |
5.4 |
0.8 |
i. Coal |
2.1 |
7.9 |
0.2 |
7.9 |
0.2 |
0.0 |
0.0 |
ii. Mineral Oils |
9.4 |
18.6 |
1.7 |
13.6 |
1.4 |
6.8 |
0.7 |
iii. Electricity |
3.5 |
3.4 |
0.1 |
5.0 |
0.1 |
5.0 |
0.1 |
3. Manufactured Products |
65.0 |
5.2 |
3.3 |
4.6 |
2.8 |
1.6 |
1.0 |
i. Food Products |
10.0 |
15.1 |
1.5 |
2.8 |
0.3 |
-1.7 |
-0.2 |
of which: Sugar |
1.7 |
44.3 |
0.8 |
-4.4 |
-0.1 |
-12.8 |
-0.3 |
Edible Oils |
3.0 |
0.4 |
0.0 |
4.9 |
0.1 |
4.2 |
0.1 |
ii. Cotton Textiles |
2.6 |
12.7 |
0.3 |
14.9 |
0.3 |
4.7 |
0.1 |
iii. Man Made Textiles |
2.2 |
8.4 |
0.2 |
9.4 |
0.2 |
3.5 |
0.1 |
iv. Chemicals and Products |
12.0 |
3.7 |
0.4 |
4.3 |
0.5 |
1.7 |
0.2 |
of which : Fertilisers |
2.7 |
1.9 |
0.0 |
7.5 |
0.2 |
4.8 |
0.1 |
v. Non-Metallic Mineral Products |
2.6 |
3.2 |
0.1 |
2.2 |
0.1 |
0.9 |
0.0 |
of which: Cement &Lime |
1.4 |
2.3 |
0.0 |
1.7 |
0.0 |
0.4 |
0.0 |
vi. Basic Metals, Alloys and Metal Products |
10.7 |
1.4 |
0.2 |
6.0 |
0.6 |
3.4 |
0.3 |
of which: Ferrous Metals |
8.1 |
0.5 |
0.0 |
6.2 |
0.5 |
3.7 |
0.3 |
vii. Machinery and Machine Tools |
8.9 |
1.5 |
0.1 |
2.9 |
0.2 |
0.8 |
0.1 |
of which: Electrical Machinery |
2.3 |
-1.1 |
0.0 |
2.7 |
0.1 |
0.8 |
0.0 |
viii. Transport Equipment and Parts |
5.2 |
1.2 |
0.1 |
4.2 |
0.2 |
2.3 |
0.1 |
Memo: |
Food Items (Composite#) |
24.3 |
18.5 |
4.8 |
10.8 |
3.0 |
5.2 |
1.4 |
Food Items (Protein Based)$ |
6.4 |
28.7 |
2.0 |
23.9 |
1.9 |
8.6 |
0.7 |
Manufactured Non-food Products |
55.0 |
3.3 |
1.8 |
5.0 |
2.5 |
2.3 |
1.1 |
WPI Excluding Food |
75.7 |
7.4 |
5.5 |
7.8 |
5.6 |
3.4 |
2.5 |
WPI Excluding Fuel |
85.1 |
9.6 |
8.2 |
8.2 |
6.9 |
3.6 |
3.1 |
Essential Commodities |
14.4 |
18.6 |
2.9 |
9.1 |
1.5 |
2.9 |
0.5 |
* : Contribution to inflation in percentage points. #: Primary Food Articles+Manufactured Food Products.
$ : Includes milk, egg, fish and meat and pulses. |
VI.25 The inter-temporal volatility in core
inflation in India, measured in terms of
standard deviation of the non-food
manufactured inflation, which is relevant
for policy purposes, exhibited significant
increase in 2008-09 and 2009-10, after a long
period of relative stability (Chart VI.12). The
rise in volatility in non-food manufactured
inflation, to an extent, could be attributed
to the global commodity shocks, as rising
prices of inputs tend to cause pressure on
manufactured product prices domestically.
The data available for 2010-11 so far, however, suggest a significant moderation
in the volatility.
Consumer Price Inflation
VI.26 Inflation, as measured by various
consumer price indices, continued to
moderate in 2010-11 so far. Available
measures of inflation, as measured by
various CPIs indicate that it remained in
the range of 9.1-9.8 per cent in September
2010 (Table VI.4). The divergence between
WPI and CPI inflation also reduced in
recent months. (Chart VI.13).
|
Table VI.4 : Consumer Price Inflation - Major Groups |
(Year-on-year variation in per cent) |
CPI Measure |
Weight |
Mar 08 |
Mar 09 |
Jun 09 |
Sep 09 |
Dec 09 |
Mar 10 |
Jun 10 |
Jul 10 |
Aug 10 |
Sep 10 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
CPI-IW (Base: 2001=100) |
General |
100.0 |
7.9 |
8.0 |
9.3 |
11.6 |
15.0 |
14.9 |
13.7 |
11.3 |
9.9 |
9.8 |
Food Group |
46.2 |
9.3 |
10.6 |
12.2 |
13.5 |
21.3 |
16.0 |
13.9 |
11.6 |
9.8 |
– |
Pan, Supari etc. |
2.3 |
10.9 |
8.3 |
8.1 |
8.0 |
8.6 |
9.1 |
13.0 |
12.9 |
12.1 |
– |
Fuel and Light |
6.4 |
4.6 |
7.4 |
1.4 |
4.2 |
3.4 |
3.4 |
6.9 |
10.3 |
11.5 |
– |
Housing |
15.3 |
4.7 |
6.0 |
6.0 |
22.1 |
22.1 |
33.1 |
33.1 |
21.1 |
21.1 |
– |
Clothing, Bedding etc. |
6.6 |
2.6 |
5.0 |
4.1 |
4.1 |
4.1 |
4.0 |
4.8 |
4.7 |
5.5 |
– |
Miscellaneous |
23.3 |
6.3 |
7.4 |
6.6 |
5.7 |
4.2 |
4.8 |
4.8 |
5.4 |
4.0 |
– |
CPI-UNME (Base: 1984-85=100) |
General |
100.0 |
6.0 |
9.3 |
9.6 |
12.4 |
15.5 |
14.9 |
14.1 |
11.5 |
10.3 |
– |
Food Group |
47.1 |
7.8 |
12.2 |
13.6 |
14.4 |
21.4 |
16.3 |
13.9 |
11.7 |
9.2 |
– |
Fuel and Light |
5.5 |
4.6 |
5.9 |
1.3 |
4.2 |
3.5 |
3.3 |
6.9 |
10.2 |
11.6 |
– |
Housing |
16.4 |
4.0 |
5.8 |
6.0 |
22.0 |
22.0 |
33.2 |
33.2 |
21.0 |
21.0 |
– |
Clothing, Bedding etc. |
7.0 |
4.3 |
3.3 |
4.2 |
4.1 |
4.1 |
4.0 |
4.8 |
4.6 |
5.4 |
– |
Miscellaneous |
24.0 |
4.8 |
8.6 |
7.3 |
6.0 |
4.6 |
5.3 |
5.1 |
5.0 |
5.0 |
– |
CPI-AL (Base: 1986-87=100) |
General |
100.0 |
7.9 |
9.5 |
11.5 |
13.2 |
17.2 |
15.8 |
13.0 |
11.0 |
9.6 |
9.1 |
Food Group |
69.2 |
8.5 |
9.7 |
12.4 |
14.6 |
20.2 |
17.7 |
13.7 |
11.3 |
9.1 |
8.8 |
Pan, Supari etc. |
3.8 |
10.4 |
15.3 |
14.2 |
15.5 |
14.6 |
15.4 |
16.6 |
14.1 |
11.3 |
10.8 |
Fuel and Light |
8.4 |
8.0 |
11.5 |
11.0 |
12.0 |
14.3 |
15.2 |
15.5 |
14.6 |
16.6 |
16.1 |
Clothing, Bedding etc. |
7.0 |
1.8 |
7.4 |
8.3 |
8.1 |
8.2 |
9.1 |
9.6 |
9.9 |
10.1 |
10.2 |
Miscellaneous |
11.7 |
6.1 |
6.5 |
6.1 |
7.1 |
7.0 |
7.6 |
7.7 |
7.0 |
6.3 |
6.0 |
CPI-RL (Base: 1986-87=100) |
General |
100.0 |
7.6 |
9.7 |
11.3 |
13.0 |
17.0 |
15.5 |
13.0 |
11.2 |
9.7 |
9.3 |
Food Group |
66.8 |
8.2 |
10.0 |
12.4 |
14.6 |
20.4 |
17.7 |
13.9 |
11.5 |
9.5 |
8.8 |
Pan, Supari etc. |
3.7 |
10.6 |
15.0 |
14.1 |
15.4 |
14.4 |
15.5 |
16.7 |
14.3 |
11.8 |
11.1 |
Fuel and Light |
7.9 |
8.0 |
11.5 |
11.0 |
12.0 |
14.1 |
15.0 |
15.3 |
14.5 |
16.4 |
15.9 |
Clothing, Bedding etc. |
9.8 |
2.8 |
8.2 |
8.8 |
9.5 |
10.3 |
9.8 |
10.3 |
10.2 |
10.3 |
9.5 |
Miscellaneous |
11.9 |
6.2 |
6.7 |
6.2 |
6.9 |
6.6 |
7.2 |
7.3 |
6.8 |
6.1 |
5.8 |
WPI Inflation |
|
|
|
|
|
|
|
|
|
|
BaseYear:2004-05=100 |
7.7 |
1.5 |
-0.7 |
1.1 |
6.9 |
10.2 |
10.3 |
10.0 |
8.5 |
8.6 |
GDP Deflator based Inflation* |
4.9 |
7.9 |
0.9 |
0.7 |
5.8 |
4.5 |
11.8 |
– |
– |
– |
*: Data for March pertain to full year.
IW : Industrial Workers. UNME : Urban Non-Manual Employees. AL : Agricultural Labourers. RL : Rural Labourers. |
VI.27 With strengthening of domestic
growth prospects, inflation management
assumed prime importance, which was
reflected in the normalisation of monetary
policy. Overall, the inflationary process,
which originated from supply shocks, and
then turned increasingly generalised, seems
to have now moderated but remains elevated
at beyond the comfort level. Upward revision
of administered prices and lagged reporting
of past price increases added momentum to
the uptrend in WPI. Among the positive
developments, given the expected better
agricultural output than last year, food price pressures may soften during the course of
the year. Nevertheless, current trends suggest
a possible ratchet effect, with food inflation
appearing sticky and somewhat impervious
to generally expected favourable impact of
a normal monsoon, thus posing a key risk to
the overall inflation environment. The persistence of food inflation not only has
adverse welfare effects as the poor have
larger share of food in their consumption
basket, but could also impact the core
inflation after a lag, causing a generalisation
of price pressures. Another important risk
to inflation could emanate from the recent upward momentum witnessed in the global
commodity prices, which could partly get
imported even with record domestic
production, as has been the case for cotton.
Capacity constraints, in some sectors,
along with increasing pricing power of
firms in the context of stronger growth momentum, is a source of risk to the
inflation process. While non-food
manufactured inflation has shown some
moderation in recent months suggesting
that monetary actions are having an
impact, inflation still remains above the
comfort level.
1 The Office of Economic Adviser, Ministry of Commerce and Industry have indicated that for the purpose of research and
analysis, data of the new series of WPI (Base: 2004-05) can be used from April 2005. For other than research purpose, the
WPI Series (Base: 2004-05) is effective only from August 2010, its date of first release i.e., September 14, 2010. |