Manufacturing inflation declines further in March 2015

The Dollar Business Bureau The annual rate of inflation came in at negative 2.3% in March 2015, based on Wholesale Price Index (WPI) and a benign manufacturing inflation declined further and turned negative 0.2% in March 2015 from 0.3% in February 2015. This is the fifth consecutive month in which WPI has recorded deflation. Among the major components of WPI, primary articles and manufactured products recorded a monthly decline in inflation. Although fuel & power did not decline monthly, it is still showing a huge YoY decline (negative 12.6%) due to the collapse of commodity prices especially of oil in the global market, said an India Research & Ratings (Ind-Ra) report. The average WPI and Consumer Price Index (CPI) inflation for FY15 works out to be 2.0% and 5.9%, respectively. Reserve Bank of India (RBI) maintained status quo on policy rates in its first bi-monthly monetary policy statement for FY16. Ind-Ra, however, said that it expects RBI to cut the repo rate by 50bp in FY16. The retail inflation trajectory reversed in December 2014 and inched up to 5.4% in February 2015, a four-month high due to the high food and beverages inflation. However, it fell to 5.2% in March 2015. The impact of unseasonal rains on food prices particularly of fruits and vegetables will put some pressure on inflation over the forthcoming months. The agency nevertheless believes retail inflation will remain within the glide path of RBI in the near term. It is based on the premise that (i) global commodity prices including crude will remain soft (ii) the minimum support price of food grains will grow slowly in FY16 and (iii) the manufacturing sector will have low pricing power. Manufacturing inflation has been falling since July 2014 when it was 4.1%. Manufacturing recovery has remained uneven across use - based segments as also on monthly basis. Consumer durables output contracted 3.4% in February 2015 and 13.3% so far in FY15. With the exception of basic and capital goods, the performance of other segments has also been tepid so far in FY15. This is because industrial recovery continues to be fragile and manufacturers are unlikely to exercise their pricing power. Even non-food manufacturing inflation, also known as core inflation, turned negative 0.4% in March 2015 from 4.0% a year ago and 0.1% a month ago. As global prices of crude remain soft, the fuel & power component of WPI witnessed deflation of 12.6% in March 2015 compared with 11.8% inflation a year ago and 14.7% deflation a month ago. The price of the Indian crude basket came in at USD57.44/bbl on April 14, April 2015 from USD104.56/bbl on April 1, 2014, said the report.    

This article was published on April 18, 2015 – 4:54 pm IST.