WPI inflation rises to 3.39% in December 2016

Rise in December WPI is in contrast to a marginal decline in Consumer Price Index for the month

The Wholesale Price Index (WPI)-based inflation for December rose to 3.39 per cent from 3.15 per cent in November, with rising prices of petrol and diesel. In December 2015, WPI inflation was a negative 1.06 per cent.

Data from the commerce ministry showed while food prices fell in December by 0.7 per cent, compared with a rise of 1.54 per cent in November, diesel rose 20.25 per cent and petrol by 8.52 per cent. The overall inflation index of the fuel and power segment rose 8.65 per cent.

This rise in the December WPI is in contrast to a marginal deceleration of the Consumer Price Index (CPI) for the month. The latter figure, issued last Thursday, showed a dip in the rise to 3.4 per cent, versus 3.6 per cent in November.

“The divergence primarily comes down to the composition of these two indices,” said Madan Sabnavis, chief economist at CARE Ratings. “WPI has a higher food and manufacturing composition and hence, is rising due to increase in global crude oil prices. CPI has a greater composition of food. Prices are down due to good output and possible distress sales in mandis and lower demand due to demonetisation.” Fuel and power have a weight of nearly 15 per cent and manufactured products of 65 per cent in WPI inflation. Food and beverages have a weight of 54 per cent for CPI inflation. Sabnavis said the divergence is expected to continue in the coming months, due to increasing crude oil prices after the petro exporters’ cartel deciding late last year to cut global output.

 

The WPI data showed inflation in vegetables, 33.11 per cent in December, was a deceleration for a fourth month. This was helped by a substantial price fall in onions, of 37.2 per cent. The rise in prices of manufactured goods could lead to the Reserve Bank of India deciding against a rate cut in its next monetary policy review on February 8. “The trajectory of WPI inflation is likely to chart a rise in January-February, before a dip in March. Food inflation is likely to rise over the ongoing quarter as the base effect turns unfavourable and the end of winter pushes up prices of perishables,” said Nayar.

The rise for manufactured articles was 3.67 per cent, from 3.2 per cent in November.