Producers’ inflation, better known as Wholesale Price Index (WPI), has slipped to 2.26 per cent in February. This means, producers are getting less price for their produce which could also be lower consumption demand and higher supply.

According to data released on Monday by the Ministry of Commerce & Industry, the annual rate of inflation, based on monthly WPI, stood at 2.26 per cent for February, compared to 3.1 per cent for January and 2.93 per cent during the corresponding month of the previous year. Build-up inflation rate in the financial year so far was 1.92 per cent compared to 2.75 per cent in the corresponding period of the previous year.

The basic reason for reduction in WPI rate is lower fruit and vegetable prices. According to Government data, the inflation rate for ‘Food Articles’ group declined by 3.7 per cent due to lower price of fruits and vegetables (14 per cent), tea (8 per cent), egg and maize (7 per cent each), condiments & spices, and bajra (4 per cent each), gram and jowar (2 per cent each) and fish-inland, pork, ragi, wheat, urad and masur (1 per cent each).

However, the price of beef and buffalo meat and fish-marine (5 per cent each), betel leaves (4 per cent), moong and poultry chicken (3 per cent each), mutton (2 per cent) and barley, rajma and arhar (1 per cent each) moved up.

Coronavirus impact

According to Aditi Nayar, Principal Economist at ICRA, “the considerable decline in the WPI inflation in February is in line with our forecast, led primarily by food items, as well as a modest contribution of the correction in prices of crude oil and minerals, which would intensify in the ongoing month.” In contrast, the core-WPI recorded a narrower disinflation in February 2020, which is expected to reverse, reflecting the growing impact of the coronavirus on prices, demand and sentiment.

An expected, decline in the prices of crude oil and various commodities, the pass-through of the same to core-WPI, and a continued correction in prices of some vegetables would result in the WPI inflation declining to sub-1 per cent in March 2020. “The higher duties on petrol and diesel will help to shore up government revenues, while preventing a sharper easing in inflationary pressures,” she said.

Late last week, fall in vegetable prices, especially onion, pushed the rate of retail inflation by over one percentage point in February. Though it is higher than the targeted level of inflation, there is a strong possibility of reduction in policy rates.

The rate of retail inflation, as measured by the Consumer Price Index (CPI), slipped to 6.58 per cent in February, from 7.59 per cent in January. For food, the rate saw a deeper decline, with the all-India inflation rate down to 10.81 per cent in February from 13.63 per cent in January. As a result of the decline in the prices of vegetables, the rate of inflation came down to 31.61 per cent, from over 50 per cent.

 

 

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