India WPI Oct’20 Analysis – WPI inflation at 8-month high

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India’s wholesale inflation rose for the third consecutive month and firmed up to an eight-month high of 1.48 per cent in October driven by manufactured items. The WPI inflation was 1.32 per cent in September and zero per cent in October last year. Unlike its consumer price index (CPI) counterpart, pressure did not come from food items in general. It was manufactured items, which have the highest weighting of 64 per cent in the WPI that saw the inflation rate rising to 2.12 per cent from 1.61 per cent over this period.

Food Inflation Softened

  1. Food inflation in October stood at 6.37 per cent, as against 8.17 per cent in the previous month.
  2. The rate of price rise in vegetables and potato remained high at 25.23 per cent and 107.70 per cent, respectively, during the month.
  3. Onions also saw prices increasing in October after a continuous fall for the previous four months. The rate for onions stood at 8.49 per cent in October against a deflation (fall in prices) rate of 31.64 per cent in the previous month.
  4. Pulses also saw the inflation rate rising from 12.53 per cent in September to 15.93 per cent in October.
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Fuel and Power Segment

  1. Fuel and power saw the deflation rate rising to 10.95 per cent in October from 9.54 per cent in the previous month.
  2. For liquefied petroleum gas (LPG), the inflation rate fell to 2.86 per cent from 3.19 per cent over this period. Both petrol and diesel continued to see a fall in prices.

Core Inflation

  1. The core inflation rate (that relates to non-food, non-fuel manufactured products) spiked to an 18-month high, 1.7 per cent from 1 per cent during this period.
  2. Inflation in non-food articles and minerals was higher at 2.85 percent and 9.11 percent, respectively.
  3. Pressure came from pharmaceuticals, medicinal chemicals, and botanical products, which witnessed the inflation rate going up to 3.31 per cent from 2.70 per cent. However, the inflation rate in October was less than the 3.40 per cent in August.
  4. The rate for basic metals rose to 5.32 per cent from 3.35 per cent over the period while mild steel and semi-finished steel saw it increasing to 4.85 per cent from 4.06 per cent.

August marked the first month since March that the WPI turned positive growth, which was considered a sign of an industrial recovery with producers’ pricing power returning. October’s numbers suggest that this trend has strengthened with manufactured group inflation hitting a 19-month high. Large part of this hike is due to festival related demand and Inflation may continue to record a steady uptick in month-on-month terms over the next few months, thus leaving limited room to reduce policy rates.

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Adroit Financial
SEBI Registered PMS Advisor - INP000005349
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