Wholesale inflation at 30-month high in January on high commodity prices

Wholesale inflation rose to a two-and-a-half-year high of 5.2 per cent in January

The Wholesale Price Index (WPI)-based inflation rose to a two-and-a-half-year high of 5.2 per cent in January, widening the divergence with the Consumer Price Index (CPI) numbers.

The rising prices of commodities, including petrol and diesel, led to a rise in WPI inflation, which was 3.4 per cent in December, showed official data released on Tuesday.

On the other hand, the data released on Monday showed that CPI inflation fell to a series low of 3.2 per cent in January from 3.4 per cent in the previous month.

“The wedge that has opened up between WPI and CPI inflation in January 2017, is likely to persist in the remainder of this quarter,” said  Aditi Nayar, principal economist with ICRA.

The fall in CPI inflation and rise in WPI inflation also had to do with the way basket in each index is composed of. While both the indices showed sharp reduction in food inflation due to cash

crunch after demonetisation, it was much more pronounced in headline CPI numbers, as food items have over 45 per cent  weightage  in the retail price index and just over 14 per cent  in WPI.

In fact, food prices fell for the second continues month in January in WPI terms. The decline though moderated to 0.56 per cent in January, from 0.70 per cent  in December. The decrease in food prices was due to a plunge in vegetable prices for the fifth month in a row. The prices declined over 30 per cent in January and December.

However, inflation in fruits, and protein-based items such as egg, meat, fish and milk rose. Pulses also saw sharp reduction in inflation to 6.21 per cent in January, from 12.21 per cent in the previous month.

Commodities such as oil and diesel fuelled up WPI inflation. While petrol turned dearer by 15.66 per cent in January, against 8.22 per cent in December, diesel was costlier by 31.10 per cent against 20.25 per cent.

Oil prices have been on rise since the Organisation of the Petroleum Exporting Countries, in early December, decided to cut output for the first time in eight years. Spot LNG prices have also risen from $5.25 to about $9 per MMBTU on winter heating requirements. Liquefied natural gas (LNG) is used for power generation.

Similarly, inflation in basic metal alloys, iron, metal products, rubber and plastic products rose. “Based on the expected trajectory of food prices, commodity prices and exchange rates, we expect

WPI inflation to rise further in February 2017, before easing marginally in March 2017,” Nayar said.