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Headline inflation, as measured by the Wholesale Price Index (WPI), printed at -4.1 per cent for July, was down sharply from -2.4 per cent in June, as food inflation fell to -1.2 per cent compared with 2.9 per cent in June, mainly on base effect. Lower fuel and core inflation in July, too, added downward pressure.
Food inflation turned negative in July, for the first time in a long while, as inflation in fruit and vegetables fell to -15 per cent due to a high base —in July last year, inflation in these items had nearly doubled, causing food inflation to surge.
Meanwhile, inflation in pulses continued to surge — touching 35.8 per cent in July, led by high inflation in arhar (tur) at 44.9 per cent, urad (37.2 per cent) and gram (41.1 per cent).
Inflation in the overall manufactured products category continued to slide deeper into negative territory.
Meanwhile, falling global commodity prices and sluggish domestic demand kept core inflation — as measured by the CRISIL Core Inflation Indicator (CCII) — low. Inflation on the barometer fell to -0.5 per cent compared with 0.1 per cent in June.
Another measure of core inflation, the non-food manufacturing inflation (which includes the volatile base metals category), reported a sharper fall during the month (1.4 per cent compared with -0.9 per cent in June) as global commodity prices slipped further. This is the fifth consecutive month non-food manufacturing is in the negative zone. CCII offers a better perspective on core inflation, chafing out the effect of volatile categories. It excludes the ‘base metals’ category, since metal prices are mostly determined by changing global demand-supply dynamics and volatility in exchange rate rather than domestic conditions alone. This exclusion caused a variance in CCII and non-food manufacturing inflation during July. Global metal prices fell 25.5 per cent year-on-year, which caused inflation in the basic metals category to fall to minus six per cent in July compared with -4.9 per cent in June.
The decline in WPI inflation since November 2014 is the sharpest in a decade. So is the case with core inflation, the sharpest sustained decline in demand. Also, since inflation has turned negative, global metals and minerals prices have fallen an average 14.7 per cent year-on-year, while global fuel prices have slipped 41.8 per cent. The disinflationary pressures on core and manufactured products index have been intensified by excess capacity in the manufacturing sector, as revival in domestic demand remains sluggish.
A CRISIL Research study, Investment slide to continue, August 2015, has found that current utilisation rates in 10 of 12 large industrial sectors are at five-year lows. In the metals space — particularly steel and aluminium — India has created surplus capacities in the past few years and is turning into a net exporter from a net importer. Refining and marketing, and petrochemicals, are being affected by the global decline in commodity prices.
CRISIL
