The CPI (retail inflation) announced for the month of April 2017 came in sharply lower at 2.99% compared to 3.89% for the month of March 2017 and overall CPI inflation at 5.47% in the corresponding April last year. This sharp fall in CPI inflation has also been driven by a very sharp fall in food inflation. In fact, food inflation for the month of April has touched a low of 0.61% largely assisted by negative inflation in pulses and vegetables. That has been the trend for the last few months and has not changed.
Key highlights of the CPI inflation for April 2017…
WPI Inflation also comes in much lower in April 2017…
If CPI inflation surprised on the downside, same was the case with wholesale inflation (WPI). The WPI eased to 3.85% for April compared to 5.29% in March 2017. Over the last 8 months, the WPI inflation has been consistently in the positive territory which has obviated the risk of deflation and a slowdown in the economy. So how exactly did the components of WPI perform in April?
There was a sharp deceleration in each of the key components of WPI. Firstly, the primary articles inflation for April came in at 1.82% compared to 3.98% in the month of March 2017. Secondly, the fuel and power inflation for April came in at 18.52% compared to 23.66% in the month of March 2017. Finally, inflation on manufactured items also came in lower at 2.66% in April 2017 compared to 3.03% in the month of March 2017. Effectively, WPI saw lower inflation across the 3 key categories of primary articles, fuel and manufactured products. A downward trend in CPI inflation and WPI inflation is a good sign for the price levels and the level of sustainable inflation. It means that cost push inflation does not look likely for now and that is good news for CPI inflation too.
WPI inflation changed its base year in April 2017…
It also needs to be remembered that WPI inflation saw a shift in base year during the month of April. Here are some of the key changes that have come about. Firstly, the base year for the calculation of WPI has shifted from 2004-05 to 2011-12. This will make the WPI more comparable with the other key economic parameters. Secondly, the revamped WPI has seen a shift in weights. The weightage of primary articles has gone up from 20.12% to 22.62%, while the weightage of power & fuel has gone down from 14.91% to 13.15%. The share of manufacturing has also gone down marginally from 64.97% to 64.23%.
There has also been a rationalization in the components and process of WPI calculation. For example, the number of items considered has gone up from 676 to 697. While 199 new items have been added to WPI calculation, a total of 146 items have been dropped to better reflect the picture of producer inflation. But most importantly, for the fiscal year 2017, the new WPI is coming in 200 basis points lower at 1.7% as compared to 3.7% in the old base year calculations. That should be the biggest positive cue for the overall GDP growth. That may be the good news!