Few key commodities driving inflation: RBI

Sugar, oil cakes, food grains, eggs, meat, fish and drugs and medicines have a combined weight of 14.8 per cent in overall wholesale price index (WPI), it explains a significant part of the inflation during recent months, said the RBI.

The current phase of inflation in India is driven by increase in prices of a few commodities such as sugar, oil cakes, food grains, eggs, meat, fish and drugs and medicines, the Reserve Bank said on Thursday.

Since the above commodities have a combined weight of 14.8 per cent in overall wholesale price index (WPI), it explains a significant part of the inflation during recent months, the RBI said in its Third Quarter Review of Macroeconomic and Monetary Developments for this fiscal (FY 10).

However, the contribution of these key drivers has come down in December 2009, indicating early signs of inflation getting generalised, the apex bank said.

Commodities with zero or negative inflation, however, had an aggregate weight of 50.7 per cent in the WPI, it said.

In terms of contribution to overall inflation by the major groups, primary articles group continues to drive the overall WPI inflation, besides the manufactured food products.

“The contribution of non-food manufactured products group, which waned during the declining phase of inflation, has also started to increase in recent months,” the RBI said.

On the fuel group, it said that its contribution which was significantly negative since January 2009, has now shown a reversal of trend in recent months “and now contributes positively to overall inflation.”

Prices of the essential commodities group increased by 21.9 per cent YoY in December 2009, driven by food items, particularly sugar, eggs, fish, meat, milk, rice, vegetables and pulses, all of which had recorded double-digit inflation ranging from 54 per cent (sugar) to 13.4 per cent (milk), the RBI said.

Primary articles prices have increased by 14.3 per cent as on January 9 over the end-March 2009 level of the index.

During the current financial year, vegetables and pulses prices have been the key drivers of the increase in primary food prices, so far, the Apex Bank said.

Some part of the vegetable prices increase could also be attributed to the seasonal hardening of prices during Q3, which usually declines during the January-March quarter with the arrival of the winter crop, it added.

On pulses, the RBI said that its inflation increased on account of the significant reduction in kharif pulses output during 2009-10 (an 8.3 per cent decline).

“The current rabi sowing, however, indicates an improvement in overall pulses cropping (5.8 per cent increase as on January 15), which could help in dampening some of the price pressures by end-this fiscal,” the RBI said.

Among non-food articles, raw cotton and oilseeds prices increased, moving in line with international prices which increased by more than 25 per cent (oilseeds) and around 38 per cent (cotton) since December 2008 when prices hit a trough.

Oilseeds output is expected to decline by 15.1 per cent for the kharif crop during 2009-10, it said, adding that however, cotton output, is expected to increase by 2.2 per cent.

The Reserve Bank said that import of food has also been viewed as an option to contain high food inflation.

“It may, however, be noted that recent increase in international food prices have limited the scope of import being a significant option to check price rise,” it said.

Fuel group inflation remained significantly negative since December 2008 but turned positive in December 2009, reflecting the base effect of downward revision of administered prices in December 2008.

During the current financial year (up to January 9), fuel prices have increased by about 9.2 per cent.

Price of furnace oil increased at 60.2 per cent, bitumen at 15.4 per cent, aviation turbine fuel, 46.8 per cent, light diesel oil 27.6 per cent and naphtha 52.5 per cent, it said.

Basic metals, alloys and products’ sub-group of manufactured products registered negative inflation YoY in December 2009, mainly on account of a decline in the prices of iron and steel.

There was, however, a marginal increase in the price of steel sheets. Indicating a revival in construction activity, prices of iron bar and rods also increased.