Wholesale Price Index-based inflation and metal prices
Lower Wholesale Price Index, or WPI, inflation is unlikely to affect monetary policy, which is now intent on bringing Consumer Price Index-based inflation down to 4% in the medium term
Wholesale Price Index (WPI)-based inflation for March 2017 came in at 5.7% year-on-year, well below February’s 6.55%. But as the chart shows, one big reason for the slowing of inflation is the fall in metal prices. The group “Basic metals, alloy & metal products” has a weight of 10.75% in the index. The chart shows how the spurt in metals prices has moderated in the last two months, in part due to lower international prices and partly due to a stronger rupee.
Has the rise in metals prices run its course? Much depends on China. Gaurav Kapur, chief economist at IndusInd Bank Ltd, says the bulk of the rise in metals prices is behind us and WPI is also likely to remain low in the next four months due to a higher base. It is difficult to predict Chinese policy though and its first-quarter GDP growth came in at a higher-than-expected 6.9%.
Lower WPI inflation, however, is unlikely to affect monetary policy, which is now intent on bringing Consumer Price Index-based inflation down to 4% in the medium term.