For the week ended 15th March’08 inflation numbers came in at a high of 6.68% as compared to 4.89% on 16th February’08. Inflation is the rate in change in the Wholesale price Index (WPI). The three major components of the WPI index are a) Primary Articles with a weightage of 22.02%, b) Fuel, Power, Light and Lubricants with a weightage of 14.23% and Manufactured products with a weightage of 63.75%.

Trends in WPI numbers and its constituents

The trend in inflation from March’07 to December’07 was that of easing. The main reason for the lower growth in inflation numbers was the lower rate of growth in manufacturing articles which has the highest weightage in the WPI. Lower fuel price inflation also was responsible for the slower growth in inflation numbers. However primary price articles contributed positively to inflation numbers. Since December’07 the fuel and power component of the WPI also led to a positive up tick in inflation numbers.

However since January’08 the manufacturing inflation has risen sharply which has resulted in a spurt in inflation numbers from 3.79% 05th January’08 to 6.68% for the week ending 15th March’08. On a week on week basis the sudden spurt in inflation numbers by 289bps is mainly due to the nearly 2% rise in the prices of manufacturing articles which has the highest weightage in the WPI. Primary article prices have been rising at a fast pace contributed by a rise in prices of food and non food articles. The fuel and power group have also started contributing to the inflation numbers as global crude oil prices have risen significantly resulting in prices of oil based products. As the impact of high crude prices was not fully passed on to the consumer, the contribution of the fuel and power group was lower than expected.

Going ahead, we expect inflation to continue to remain at higher levels for the next 1-2 months on the back of high commodity prices both agricultural and industrial. However various measures by the government like banning iron ore exports, reducing duties on edible oil and other agricultural prices could result in inflation numbers. Since the impact of these measures would take time to bring down commodity prices it would take a while before inflation numbers start showing a downward trend.

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