 "Small-ticket payments to be worst-hit")
A day after official data showed Consumer Price Index (CPI) numbers fell to a record low in November, the numbers made public on Wednesday revealed Wholesale Price Index (WPI) inflation declined to a five-month low of 3.15 per cent in the month, from 3.3 per cent in October.
Both numbers basically fell on food items becoming expensive at a lesser pace in November this year as compared to the same month last year.
Friday's numbers showed that even in food items, it was mainly vegetables and fruit that dragged down inflation. Both rice and wheat moved up. Pulses saw mild moderation in November as compared to October but the rate of price rise remained above 20 per cent.
"I believe fear of falling inflation (due to the demonetisation effect) is overstated," said Aditi Nayar, principal economist at ratings agency ICRA. She pegged inflation on the CPI and WPI indices at 4.1 per cent each in December as global commodity prices affect the numbers and the base effect wanes.
This effect was evident in November. In the same month last year, the CPI number was high at 5.41 per cent, a record then. The higher the number in the previous year, the lower inflation looks in the current year, technically called the base effect.
However, there was WPI deflation in November of the previous year at 2.04 per cent, after which it fell to below one per cent for the next four months.
According to the government mandate, the Monetary Policy Committee (chaired by the Reserve Bank governor) has to keep CPI inflation within a band of two to six per cent. If inflation falls outside this band in three successive quarters up to March 31, 2021, RBI will have to explain the reasons.
Fuel and manufactured products saw a rise in WPI inflation. These have 79 per cent weight in the WPI and if inflation rises further in these two categories, the headline number would also see upward pressure, negating the downward impact from food prices and subdued demand. And, as wholesale prices are lead indicators to consumer prices, inflation in manufactured items and fuel products would also see a rise in CPI in the coming months, with a lag.
However, food items have 45 per cent weight in the CPI, which would offset to some extent this upward pressure.
IDFC Bank chief economist Indranil Pan said WPI trends would be determined more by the global factors of currency, metal and oil prices than domestic factors of the food economy.
"Given this, we now expect headline WPI inflation to read 3.64 per cent in the next month and rise to 4.6 per cent by the close of the financial year, as crude oil prices are up 16 per cent and global metal prices are up around four per cent," he said.
