Non-revision of coal prices lead to drop in wholesale price index

COIMBATORE: The sharp decline in wholesale price index (WPI) based inflation to 6.62% in January was largely due to the non-revision of coal prices, market observers said. This is the first time that WPI inflation has fallen below the 7% mark since November 2009. Core inflation or non-food manufacturing inflation, an indicator of demand-side pressures in the economy, also remained low at 4.1% in January, significantly down from its peak of 5.8% in August 2012.
Despite the increase in diesel prices in January, fuel inflation declined to 7.1% in January from 9.4% in the previous month as coal prices have not been revised since January 2012. Inflation of administered fuels (coal, electricity, diesel, kerosene, LPG, lubricants) which constitute 80% of the overall fuel index, declined creating a sharp downward pressure on overall fuel inflation, ratings agency Crisil said. "This was primarily due to a decline in coal inflation to 0% in January from 13.9% in the previous month as prices have not been revised for the past one year," it said.
" Headline WPI inflation fell to a lower-than-expected 6.62% in January primarily due to a delay in coal price revision. We expect part of the fall to be reversed whenever the revision happens," Nomura India economists Sonal Varma and Aman Mohunta said. "Continued fiscal tightening and no visible trigger for demand in the near term should keep demand pressures weak in the coming months as well," they said.
Headline WPI inflation would remain around the current levels for the next few months but would pick up towards the second half of 2013, Nomura India estimated. "We expect core inflation to remain benign due to the lagged impact of a sharp slowdown in GDP growth this year," Crisil said. Fuel and power inflation moderated for the fourth straight month compared to the almost double-digit growth in the past three years, mainly owing to inflation in coal remaining flat and a slight deceleration in mineral oils such as ATF, naptha and furnace oil.