WPI inflation eases in sync with retail, but core spikes in December

Softens to four-month low of 1.22% in December from 1.55% in November as food items enter deflationary zone; core inflation at 2-year high of 4.2%

In tandem with its retail counterpart, wholesale inflation rate softened to a four-month low of 1.22 per cent in December from 1.55 per cent in November as food items entered the deflationary zone. 

However, core inflation (which does not include food and fuel items) rose to a two-year high of 4.2 per cent on metal and commodity prices that may not allow the  monetary policy committee of the Reserve Bank of India to go for any further rate cut in February. This was despite consumer price inflation rate declining to a 15-month low of 4.6 per cent. 

In that sense, there are diversionary trend in food and manufactured items (sans processed food products) inflation rate. 

Food prices fell by 1.61 per cent in December against the inflation rate of 2.72 per cent in the previous month. 

In fact, vegetables, which saw huge spike in the inflation rate recently, witnessed deflation at 13.2 per cent in December. Onions particularly saw prices dropping by 55 per cent.  

 

Fuel and power category continued to see fall in prices even as liquefied petroleum gas (LPG) faced inflation of 2.15 per cent in December against deflation of 4.38 per cent in the previous month. The deflation in fuel and power category declined to 8.72 per cent in December against 9.87 per cent in the previous month.  

Krupesh Thakkar, head of the department of financial markets at ITM B-School, said though the fuel inflation index is negative owing to the higher base of last year, on the month-on-month basis, it has gone up by whooping 3.2 per cent owing to steep rise in prices of LPG, petrol and diesel. "This was expected as India's crude oil basket jumped 15 per cent in December ,2020," he said. 

Manufactured items saw inflation rate jumping to 4.24 per cent in December from 2.97 per cent in the previous month. 

However, processed food items in this category saw the inflation rate coming down to 4.89 per cent from 4.95 per cent during this period. 

Core inflation as cited above remained a matter of concern. 

Aditi Nayar, principal economist at ICRA, said it injected concern regarding the trajectory of the WPI going forward. 

 

She attributed this to higher commodity and metal prices as well as a rise in pricing power in line with the revival in global demand with the covid-19 vaccines roll out.

"The surge in the core-WPI inflation has completely doused any lingering hope that the dip in the December 2020 CPI inflation would be adequate for rate easing to recommence in the upcoming policy review," Nayar said. 

Sameer Narang, chief economist at Bank of Baroda, said of the 22 commodities in manufactured products, prices of 15 commodities rose. "The pace of global economic recovery implies there is room for further increase in global commodity prices which will put upward pressure on wholesale inflation," he said.