Fuel Pushes Whole­sale In­fla­tion to 2.5-Year High

Whole­sale in­fla­tion for Jan rose to 5.25% against 3.39% in Dec; core whole­sale in­fla­tion firmed up to 28-mth high of 2.67%

The Economic Times - - Economy: Macro, Micro & More - Our Bureau

New Delhi: Costlier fuel and an ad­verse base ef­fect pushed whole­sale in­fla­tion to a two-and-a-half year high in Jan­uary, even as price rise in food items re­mained muted.

Whole­sale in­fla­tion for Jan­uary came in at 5.25% com­pared with 3.39% in De­cem­ber, data re­leased by the com­merce and in­dus­try min­istry on Tuesday showed.

Core whole­sale in­fla­tion, or non­food, non-fuel in­fla­tion, firmed up to a 28-month high of 2.67% in sync with an over 5% read­ing for core con­sumer in­fla­tion. Data re­leased on Mon­day showed con­sumer in­fla­tion fell to a five-year low of 3.17% be­cause of weak food in­fla­tion, but it is ex­pected to firm up in the com­ing months.

Higher global com­mod­ity prices led by 18.14% in­fla­tion in the fuel and power seg­ment drove Whole­sale Price In­dex (WPI) to its high­est level since July 2014. Fuel in­fla­tion was 8.65% in De­cem­ber.

“Higher WPI in­fla­tion along with be­nign CPI (con­sumer price in­dex) in­fla­tion is likely to fur­ther widen the wedge be­tween re­tail and whole­sale in­fla­tion, with the lat­ter sig­nif­i­cantly over­shoot­ing the for­mer. High core WPI and CPI in­fla­tion con­tin­ues to weaken the case for a rate cut in the fore­see­able fu­ture,” said Upasna Bhard­waj, se­nior econ­o­mist at Ko­tak Mahin­dra Bank.

An­a­lysts had ex­pected a 3.8% in­crease in WPI in Jan­uary.

WPI in­fla­tion in man­u­fac­tured prod­ucts, which has a 64.97% we- ight in the in­dex, rose to 3.99% in Jan­uary from 3.6% in the pre­vi­ous month.

Food in­fla­tion was in the neg­a­tive zone for the sec­ond month run­ning, with in­dex down 0.56% in Jan­uary from that a year ago.

Economists ex­pect com­mod­ity prices to push WPI even fur­ther and the cen­tral bank to keep rates on hold for a while. “Given the high prints for both fuel and man­u­fac­tured prod­ucts, con­cerns on their dif­fu­sion into CPI are likely to keep Mon­e­tary Pol­icy Com­mit­tee on hold a bit longer. They might pre­fer to wait for a few more data points to gauge the ef­fect on in­fla­tion ex­pec­ta­tions,” said Sau­gata Bhat­tacharya, chief econ­o­mist at Axis Bank. Yes Bank ex­pects WPI to trend up in the up­com­ing prints as ad­verse base ef­fects, higher global com­mod­ity prices and uptick in eco­nomic ac­tiv­ity im­part an up­side thrust.

“With sim­mer­ing global risks em­a­nat­ing from re­ver­sal in com­mod­ity cy­cle and un­cer­tainty from the US mon­e­tary and fis­cal pol­icy likely to worsen the trad­able in­fla­tion tra­jec­tory and core CPI in­fla­tion ex­pected to re­main per­sis­tently sticky, we ex­pect RBI to main­tain sta­tus quo through at least first half of 2018,” Bhard­waj said.

The gov­ern­ment re­vised whole­sale in­fla­tion for Novem­ber to 3.38% from 3.15% ear­lier.

Food in­fla­tion was in neg­a­tive zone for 2nd month, with in­dex down 0.56% in Jan from yr ago

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