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The headline inflation (at CPI-C) remained under control for the third successive financial year—declined to 4.9 per cent in 2015–16 from 5.9 per cent in 2014–15 (was 4.8 per cent during April-December 2016). Inflation hardened during the first few months of 2016–17, mainly due to upward
pressure on the prices of pulses and vegetables. It dipped to two-year low of
3.4 per cent in December 2016 as a result of lower prices (especially of food items).
The average inflation (at WPI) declined to (–) 2.5 per cent in 2015–16 from
2.0 per cent in 2014–15. The downward trend, however reversed during 2016–17 partly due to impact of rise in global commodity prices and partly owing to adverse base effect. The global commodity and energy prices have increased by 18 per cent and 23 per cent respectively in the first eleven months of 2016 (as per IMF price indices). The WPI inflation stood at 3.4 per cent in December 2016 and the average inflation was 2.9 per cent during April–December 2016.
Food inflation: Inflation has been repeatedly driven in the country by narrow group of food items. Pulses continued to be the major contributor of food inflation—prices of pulses, in particular tur and urad, remained persistently high from mid-2015 to mid-2016 (due to shortfall in domestic and global supply)—improved later on the back of better crops. Sugar prices also firmed up on account of lower production and hardening of price in the international market. Vegetable prices, which flared during the lean summer season, also declined sharply as supply picked up during the post monsoon and winter season. The CPI food inflation (CFPI) has, as a result, dipped to a two-year low of 1.4 per cent in December 2016. The inflation for pulses and products dipped to negative 1.6 per cent in December 2016, with vegetables inflation in negative since September 2016.
Core inflation: This remains sticky. CPI based refined core inflation (exclusive of food & fuel group, petrol & diesel) has been averaging around 5 per cent. Inflation for Pan, tobacco & intoxicants, Clothing & footwear, Housing and Education groups continued to be above 5 per cent and the major contributors of the core inflation. Inflation for the ‘Transport & communication’ group has been rising in recent months partly reflecting rise in global crude oil prices and its pass-through to domestic petrol and diesel prices. Price of crude oil (Indian basket) has increased from $39.9 in April 2016 to $52.7 in December 2016. Likewise, comparatively higher gold price in the international market this financial year has contributed towards sticky core inflation.
Inflation outlook: In view of the deceleration in the wholesale and retail prices of key food items during the second half of 2016–17, the average inflation based on CPI is projected to remain below 5 per cent. For the financial year 2017–18, the recent uptick in global commodity prices, in particular crude oil prices, pose an upside risk. The food inflation is likely to be subdued—caused by higher Rabi sowing, projected increase in the production of pulses and key agri-products globally.