WPI inflation eases, but core spikes

In tandem with its retail counterpart, the wholesale inflation rate softened to a fourmonth low of 1.22 per cent in December as food items entered deflationary zone. The inflation rate based on wholesale price index (WPI) was 1.55 per cent in November.

However, the core inflation rate — which does not include food and fuel items — rose to a two-year high of 4.2 per cent on metal and commodity prices, signaling the Monetary Policy Committee of the Reserve Bank of India may not go for a rate cut in February. This was despite the consumer price index (Cpi)-based inflation rate declining to a 15-month low of 4.6 per cent.

There are diversionary trends in the inflation rates of food and manufactured items (sans processed food products).

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

Vegetables, which have recently seen a huge spike in the inflation rate, witnessed deflation of 13.2 per cent in December. Onions saw prices dropping 55 per cent.

The fuel and power category continued to see a fall in prices even as liquefied petroleum gas (LPG) saw an inflation rate of 2.15 per cent against deflation of 4.38 per cent in November. The deflation in fuel and power declined to 8.72 per cent against 9.87 per cent.

Krupesh Thakkar, head of the department of financial markets at ITM Bschool, said though the fuel inflation index is negative owing to the higher base of last year, on a month-on-month basis, it has gone up by 3.2 per cent, owing to a steep rise in the prices of LPG, petrol and diesel. “This was expected as India’s crude oil basket jumped 15 per cent (in volume terms) in December,” he said.

Manufactured items saw the inflation rate jumping to 4.24 per cent, 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.

Core inflation remained a matter of concern.

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