Headline inflation trips on food, but core intact: CRISIL Inflation Tracker

Inflation based on the Wholesale Price Index (WPI) eased to 3.6 per cent in December, reversing a four-month run-up. In November, WPI inflation was at 3.9 per cent.

The dip was led by an easing in food inflation, and mildly lower core inflation – the latter reflecting weak pricing power of manufacturers. Fuel inflation surged higher, while manufactured products’ inflation stayed unchanged for the third month in a row.

Curiously, the two inflation measures – WPI and Consumer Price Index (CPI) – saw a divergence in December.

CPI inflation rose to 5.2 per cent, from 4.9 per cent in November, driven by three factors – One, vegetables inflation, which eased at the wholesale price level but firmed up at the consumer price level; two, housing inflation, which is tracked under the CPI and surged, reflecting the impact of higher house rent allowances paid to government employees; and three, inflation in personal care and effects, which is also measured under the CPI and rose mainly due to higher taxes on services under the goods and services tax regime.

In the first three quarters of this fiscal year, WPI inflation has averaged 2.9 per cent, compared with 0.7 per cent in the corresponding period a year ago. Most of the pick-up is due to higher oil and commodity prices, though lower food inflation has capped the upside. Food inflation dipped to 2.3 per cent, compared with 6.3 per cent, while fuel inflation rose to 9.7 per cent, from -6.5 per cent, and manufactured inflation rose to 2.6 per cent, from 0.7 per cent. Within manufactured inflation, base metals inflation rose to 8.4 per cent, from -3.1 per cent, while core inflation (manufacturing products inflation excluding base metals inflation) was only marginally up, at 1.6 per cent, from 1.3 per cent.

Core inflation – measured by the CRISIL Core Inflation Indicator, or CCII - has, over time, offered a better perspective of demand-side impact on inflation in manufactured products – reason why it also indicates the pricing power of manufacturers which is currently weak. CCII is computed after excluding inflation in ‘basic metals and products’ from manufactured products, which is subject to high price volatility.

Going forward, food inflation is expected to stay in check because of bumper farm output and benign global prices. But if global energy prices continue to spiral up, and the rupee stays weak, it can have a bearing on imported inflation. Also, as the pent-up consumption demand in the economy returns and manufacturers’ pricing power improves, some upside to inflation is inevitable.


In December, overall food inflation (food articles plus manufactured food) fell to 3 per cent, from 4.1 per cent in November. Inflation in cereals (at -3 per cent) and pulses (-34.6 per cent) continued to decline, while that in eggs, meat, and fish eased further (to 1.7 per cent). However, the highlight of the month was an easing in vegetables inflation (to 56.5 per cent, from 59.8 per cent) after rising for four-five months. Inflation in manufactured food articles dipped to -0.2 per cent, from 0.5 per cent.

Fuel and power inflation rose to 9.2 per cent in December, from 8.8 per cent in November, led by higher inflation in coal (especially lignite) and continued firmness in inflation in mineral oils. Fuel inflation has trended up in the last four-five months, driven by higher fuel prices – global crude oil price for the Indian basket jumped 18 per cent on-year.

Manufactured products’ inflation, at 2.6 per cent, has hardly moved in the last three months. Splitting this category into two parts gives us the core inflation (measured by CCII) and the base metal’s inflation. In December, core inflation stayed fairly stable, at 1.5 per cent, led by lower inflation in food, textiles, rubber and plastic products, electrical equipment, machinery, and transport equipment, but higher inflation in chemicals and pharmaceuticals, non-metallic mineral products, and electronic items. Base metals inflation (which includes basic metals and fabricated metal products) was down slightly at 8.7 per cent, from 9.2 per cent in November. Global metal prices saw some easing as the index rose 18.3 per cent on-year in December, compared with 21.1 per cent in November.

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