By Ruma Dubey

The Wholesale Price Index (WPI) for Feb’15, for the fourth consecutive month came in the negative. It dipped to (—) 2.06% v/s (-) 0.39% in Jan and 5.03% (YoY) as prices of food articles, manufactured items and fuel products fell during the month. Inflation in fuel and power segment declined to (—)14.72% v/s (—)10.69% (MoM).

A negative WPI and yet there is no noticeable change in our bills or increase in savings. We continue to pay through our nose for fruits and veggies, pulses, medicines, books, electricity; basically for all basic things in life. Yes, the only change – fuel prices have come down marginally though not in concurrence with the fall in global crude oil price. Even today, we go out with a Rs.1000 to shop, we come back with an half empty bag and fully empty purse. Thus in this content for us, it becomes very difficult to relate with a negative WPI.

For me and you, this WPI is truly meaningless. It gets some relevance only when the market reacts positively to it or if RBI decides to again reduce rates (fat chance of that!). So WPI in that sense could have an indirect effect on us but nothing direct.

WPI is the measure of price of manufactured goods but does not measure services. It was originally supposed to measure the price at the factory gate, which is what PPI does but it now more a measure of prices at the wholesale mandis. It includes a basket of 676 commodities, covering onions to chemicals and capital equipments. And it covers hardly anything which comes to the consumer directly.

The negative WPI was followed up with IMF paper stating that in the coming months, when the economy picks up, there is very real fear of food inflation spiking up again and this can have an impact on overall inflation. The ‘bright spot’ in which it placed India in, if inflation does raise its ugly head, could well be a passing spotlight. And there is indeed the very real probability of inflation rising. The poor kharif crop arrival in the mandis and now unseasonal rains spoiling the rabi output; all indicate that food inflation is on the uprise. Also, seasonally, once the heat sets in, costs rise and we will see that seasonal effect also kick in. the only solace – fuel price remains low and that could be a small saving grace. But that too, once world economy, scheduled to pick up in H2, could go up.

There are many now who are saying that Raghuram Rajan reduced rates in a hurry, maybe under pressure from the Govt. One cannot disagree any more vehemently to this. Of course Rajan knew what he was doing; simple logic – if we ourselves can see the writing on the wall that inflation is on the rise, wont he have very well know this for a fact? So his reducing rates, was more of a feel-good factor, By the way, it is only a feeling till now; banks are yet to pass on the total 50 bps rate cut to the consumers. We will see that happening from 1^st April 2016 and that, will kick off the much needed demand cycle, which in turn will add fuel to the industrial engine. That now will be a good thing to live with, where we see revival of growth and employment.  

The markets might not be in a celebratory mood but the negative WPI for four months straight is a good thing. But this might be the last sight of this negative WPI.

For now, the Indian and the world markets await Yellen’s FOMC meet on 18^th March – will the schedule of rate hike in USA be announced? This WPI and IMF’s good words for India are lost in the cacophony of worry and anxiety.