Fuel prices quicken WPI inflation to 11.39% in August

Fuel prices quicken WPI inflation to 11.39% in August
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Manufactured items too turn costlier.

Inflation in wholesale prices resurged to 11.39% in August, staying in the double digits for the fifth month in a row. Inflation in manufactured products escalated for the fourth month in a row to 11.4% as the second order effects of high fuel prices kicked in.

The pace of price rise in fuel and power as well as primary articles firmed up to 26.1% and 6.2%, respectively, in August after a dip in July, even though food price inflation moderated from 4.46% in July to 3.43%. The WPI had risen 0.41% in August 2020, so the base effect also came into play.

“Within the fuel and power category, LPG, petrol and diesel witnessed inflation of 48.1%, 61.5% and 50.7% respectively,” pointed out Sunil Kumar Sinha, principal economist at India Ratings and Research, stressing that such high fuel inflation levels tend to transmit across all sectors as they push up transport spending as well as input and wage costs.

Besides crude oil, prices of commodities like edible oil and basic metals, where global prices are directly passed through to users, have also flared up, he said. “Edible oil inflation has been in excess of 35% since March and basic metals have been above 20% since April,” Mr. Sinha said.

Core WPI inflation, which leaves out fuel and food items, has also hit an all-time high of 11.1% in August, continuing an uninterrupted hardening streak of 15 months, flagged ICRA chief economist Aditi Nayar.

“In spite of the primary food articles slipping into disinflation and a favourable base, the WPI inflation posted a surprise uptick to 11.4% in August, taking some sheen off the welcome easing displayed by the CPI inflation in the same month,” she said.

Overall wholesale inflation had moderated to 11.16% in July after hitting a record high of 13.11% in May. On a month-on-month basis, the Wholesale Price Index (WPI) rose 1.04% in August, after three months of a sequential increase of about 0.6%. The wholesale price trends are at a divergence with retail inflation which moderated slightly to 5.3% in August from 5.6% in July.

CARE Ratings’ chief economist Madan Sabnavis said the wholesale inflation for August was higher than expected with all the three segments — primary, fuel and manufactured goods witnessing higher inflation in August.

“Going ahead, there would be some moderation due to primary prices easing leading to lower inflation rates. However, double digit WPI would prevail for the next few months given the base effect,” he said.

“The firming up of inflation despite weak demand conditions may appear somewhat perplexing, but as manufacturers are increasingly passing on the rising input costs to their output prices, both wholesale manufacturing and core inflation is showing sustained high inflation,” Mr Sinha noted.

“The high rate of inflation in August 2021 is primarily due to rise in prices of non-food articles, mineral oils; crude petroleum & natural gas; manufactured products like basic metals; food products; textiles; chemicals and chemical products etc. as opposed to last August,” said the Office of Economic Adviser to the Department for Promotion of Industry and Internal Trade.

Inflation in fuel and power at the wholesale level was at 26.02% in July, down from 36.74% in May and 32.83% in June, while manufactured products inflation had accelerated from 10.88% in June to 11.2% in July.



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