April wholesale inflation increases 3.85 pct

Posted May 15, 2017

The Reserve Bank of India's monetary policy committee, with a mid-term target retail inflation target of 4%, has maintained a hawkish stance on inflation.

"But the RBI doesn't look at these number per se".

India's improving inflation performance has pushed real interest rates - the amount by which they exceed inflation - strongly into positive territory. That has attracted buyers to the bond market and driven stocks to double-digit percentage gains in the current year.

Inflation based on the wholesale price index slipped to a four-month low of 3.85 percent in April as both food articles and manufactured items showed cooling in prices.

But the IIP series for first 11-months of 2016-17 showed a major divergence, with a contraction of 0.3 per cent in manufacturing output compared with 7.7 per cent growth noted in the gross value added data of GDP for the whole year.

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Food price inflation for rural areas stood at 0.69 per cent in April 2017 against 1.85 per cent in March and 6.66 per cent in April 2016.

Factory production, measured on a new, more recent base year, grew more robustly and in a less volatile manner than had been presumed in the year to March, indicating that an industrial turnaround may be under way.

In WPI, inflation in food articles declined to 1.16 per cent in April from 3.82 per cent in March, mainly due to deflation of 13.64 per cent in pulses.

Under the new series, the manufacturing sector grew 1.2% in March and the mining and electricity sectors grew 9.7% and 6.2%, respectively.

The move to remove the excise duty component from the manufactured items, with an nearly 65% weight in the WPI, is being done because of the fact that the WPI is also used as a part of the deflator to calculate the real growth of gross value added (GVA) in the economy.

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IIP in the new series will continue to consist of three sectors viz.

The new series now has 809 items in the manufacturing sector in the item basket (405 item groups).

The 149 new items include steroids and hormonal preparations, cement clinkers, medical/surgical accessories, pre-fabricated concrete blocks and refined palm oil.

The WPI and IIP data based on new series were not statistically comparable with the earlier data based on 2004-05 base year, T.C.A. Anant, India's chief statistician, told reporters.

Such a change in the WPI base year is also done periodically to make the item basket a proper representative of the price pressure at the wholesale level in the country.

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The CPI-based retail inflation for the month of March this year was revised marginally upwards to 3.89% compared to 3.81% recorded previously.