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Diesel prices may continue to push up core-WPI: ICRA

Core inflation increased to a 12-month high 3.51% in March 2014 from 3.15% in February 2014, with a month-on-month uptick recorded by all 11 sub-sectors

April 15, 2014 5:12 IST | India Infoline News Service
Despite the favourable monsoon last year, primary food inflation averaged nearly 13% in 2013-14, driven up by the spike in vegetable prices in the second half of 2013, Aditi Nayar, Senior Economist, ICRA Ltd, said.
Notably, inflation related to cereals, non-vegetarian protein items, milk, vegetables and fruits exceeded 8% in March 2014, highlighting that food price pressures remain pervasive in light of supply side issues and intermittent weather-related disruptions. in the ongoing quarter, such factors are expected to keep food inflation firm. Subsequently, the magnitude, timing and spread of monsoon rainfall would critically impact sowing patterns, yields and price levels.
Core inflation increased to a 12-month high 3.51% in March 2014 from 3.15% in February 2014, with a month-on-month uptick recorded by all 11 sub-sectors. Even though demand conditions remained subdued, input price pressures related to the continued pass-through of INR depreciation (since May 2013) and rise in diesel prices contributed to a reset of prices of manufactured products. In particular, chemical & chemical products and textiles remained the biggest contributors to core inflation in March 2014, with the latter reflecting the high capacity utilisation in this export-oriented sector.
The second round effect of higher diesel prices and the base effect may continue to push up core-WPI to an extent in the coming months. However, a moderate outlook for commodity prices suggests that core inflation would remain sub-4% in the ongoing quarter. Additionally, inflationary pressures would be impacted by the extent and timing of reset of electricity tariffs in the current fiscal.

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