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Business News/ Money / Personal-finance/  Inflation in non-food manufacturing starts moving up
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Inflation in non-food manufacturing starts moving up

Inflation in non-food manufacturing starts moving up

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The headline inflation number for November, as expected, has come in at a much lower rate due to the base effect.

The build-up in the wholesale price index since March is 4.79%, which is an indication that inflation is far from dead.

The price of onions, for instance, is up 69.29% since March. Potato prices are up 43.83%.

International crude and commodity prices have been moving up again.

The global economy, as seen by the various purchasing managers’ indices, continues to show expansion and, if this is sustained, the pressure on commodity prices will continue. Also important, from RBI’s perspective, is that non-food manufacturing inflation has started to move up again, after bottoming out in September. Nevertheless, the increase has been small.

Why, if growth is so strong, has it not been translated into output price pressures in manufacturing?

A clue is provided by the RBI’s latest industrial outlook survey. When asked to comment on their assessment of production capacity with regard to expected demand in the next six months, 80.7% of those surveyed said that, during the October-December quarter, capacity was adequate. Another 12.4% said that capacity was more than adequate and only 6.9% believed their capacity was less than adequate to take care of the demand.

The survey thus indicates that the overwhelming majority of companies believe their capacities are adequate to meet demand in the near future. In other words, production is still not bumping up against capacity limits. Hence the moderation in non-food manufacturing prices, which suggests RBI can afford to keep rate hikes on hold for the moment.

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Published: 14 Dec 2010, 10:13 PM IST
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