“Softer-than-expected inflation prints for primary articles contributed to WPI inflation easing to a below forecast 3.4% in October 2016.
However, core inflation rose to a 22 month high, led by the base effect as well as some m-o-m rise in prices of various commodities.
As expected, the rise in price of gram and tomatoes led to an m-o-m rise in prices of pulses and vegetables. Nevertheless, food inflation was contained at a modest 4.3% in October 2016, a far cry from the double digit inflation in July 2016.
The minerals index does not appear to have fully captured the spike in crude oil prices in October 2016, to ~US$ 49/barrel from the average of ~US$44/barrel in the previous month.
Demonetization is expected to impact the WPI inflation, even though this index comprises of a large proportion of tradeable products, with globally determined prices. The temporary shock to economic activity, including predominantly cash based transactions at mandis as well as construction activity, would have an impact on wholesale prices from mid-November 2016 onward.”
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