Perspective on WPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
Below the Perspective on WPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
“In line with our expectations, the WPI inflation increased to 1.8% in July, up from 1.3% in the previous month. This rise in WPI inflation was primarily driven by a sharp increase in food inflation, which surged to 11.5% in September, compared to just 3.1% in the prior month. The acceleration in food inflation can be attributed to the fading of a favourable base effect seen over the past two months.
Meanwhile, inflation in manufactured products eased slightly to 1% in September, down from 1.2% the previous month. Additionally, the deflation in the fuel and power sector deepened to 4% from 0.7% in the prior month. The sharp decline in Brent crude oil prices, which fell by 9% in September amid ongoing concerns regarding global demand, further intensified deflation in the fuel and power category.
Risks to food inflation have not fully abated completely and needs monitoring. Factors such as uneven monsoon, pre-harvest rainfall, and an increase in global edible oil prices add to the risks to food inflation. Although the monsoon was approximately 8% above normal, distribution issues persisted. Kharif sowing for pulses and some oilseeds has been below the historical average, which is concerning. Additionally, the extended monsoon season and recent pre-harvest showers increase the risk of crop damage.
Apart from food price pressures, additional inflation risks arise from the external sector. The potential for a broadening conflict in the Middle East could disrupt supply chains and impact global energy prices, which would have ripple effects on the domestic economy. Furthermore, the announcement of economic stimulus in China has led to an increase in global commodity prices, particularly industrial metals over the past couple of weeks. For FY25, we expect inflation to average ~2.5%.”
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