Lower WPI output price inflation is a likely harbinger of the coming fall in CPI goods price inflation (excluding commodities – petrol, diesel, gold and silver), according to Nomura.
“Over the last nine months, firms have used the period of falling costs to rebuild their margins, but as input costs remain subdued and goods demand weakens (as evidenced by lower industrial output growth and export growth contraction), a delayed pass-through to consumers is now underway,” Nomura said in a report
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Wholesale manufacturing costs are falling sharply, reflecting lower commodity prices. WPI inflation slumped into deflationary territory at -0.9 per cent y-o-y in April, and our measure of WPI output price inflation – a weighted basket of manufactured products excluding intermediate goods – also fell to 1.7 per cent y-o-y in April from 2.7 per cent in March and a peak of 8 per cent a year ago.
“April WPI inflation data showed the first signs of a moderation in CPI goods price inflation, from a peak of 7.4 per cent y-o-y in December to 6.6 per cent in April. The sharp fall in WPI output price inflation suggests that the trend in goods price disinflation has much further to run,” Nomura said