WPI Inflation Comes Down to 5.05% For January

The annual rate of inflation measured by Wholesale price index (WPI) came at 5.05% for the month of January 2014. It is well below 6.16% that we saw for the month of December 2013 and 7.31% during the corresponding period of last month. 
Moderation in the primary article, which has a weightage of 20.12% in the total WPI basket, has led to such fall in the headline inflation. Inflation in the primary article has come down from 10.78% in the month of December to 6.84% for last month (January 2014). Fall in the prices of pulses (-6.1%) and moderation in the prices of potato (from 54.65% in December 2013 to 21.73% in January 2014) and onion (from 39.56% in December 2013 to 6.59% in January 2014) has helped to lower the primary article inflation.

Inflation of fuel & power that has a total weightage of 14.9% in the WPI basket has declined month on month basis. It has come down from 10.98% in the month of December 2013 to 10.03% for the month of January 2014. Prices of liquefied petroleum gas continued to decline and have declined by 1.42% in the month of January on yearly basis. High speed diesel prices have moderated, while petrol prices have increased in the same period. 

However, inflation of manufactured products has increased from 2.64% in the month of December 2013 to 2.76% for the month of January 2014. Price of basic metals alloys & metal product, which was declining for a while, has witnessed an uptrend in the month of January 2014. The index rose by 0.36% from decline of 1.09% in the month of December 2013.
Although CPI and WPI are showing a declining trend in the last couple of months, core inflation has remained at elevated level and not showing any signs of moderation. Core CPI inflation has remained above 8% while core WPI inflation is a shade below 3%. Therefore, we believe rate reduction is not on cards as of now and will take some time before we see interest rate reversal.