WPI turns positive after 8 months in November as food, mineral prices jump

Breaking the seven-month-long deflationary streak, India’s Wholesale Price Index (WPI)-based inflation rate turned positive in November. The data released by the Ministry of Commerce and Industry on Thursday showed that the inflation in factory gate prices touched an eight-month high of 0.26 per cent in November, up from minus 0.52 per cent in October.

This return of the wholesale inflation rate to positive territory comes on the back of a fading high base effect and an increase in the prices of food articles, minerals, machinery and equipment, computers and electronics, optical products, motor vehicles, and transport equipment, among others, compared to the corresponding month of the previous year.

Earlier in November last year, the wholesale inflation rate stood at 6.12 per cent. Inflation in food prices rose to a three-month high of 8.18 per cent from 2.53 per cent in the previous month, led by an acceleration in the prices of onion (101.24 per cent), pulses (21.64 per cent), vegetables (10.44 per cent), paddy (10.44 per cent), fruit (8.37 per cent), and milk (7.95 per cent).

Meanwhile, the prices of other food articles like wheat (2.55 per cent), cereals (7.12 per cent), and protein-rich items like eggs, meat, and fish (1.44 per cent) decelerated during the month.

Besides, the data also showed that though the deflation in prices of manufactured products (minus 0.64 per cent) narrowed, it continued for the ninth consecutive month in November, compared to minus 1.13 per cent in October. This was led by a continued contraction in the prices of food products (minus 1.64 per cent), vegetable and animal oil (minus 18.43 per cent), textiles (minus 3.52 per cent), paper (minus 8.28 per cent), chemicals (minus 6.13 per cent), metals (minus 1.54 per cent), rubber (minus 0.86 per cent), and steel (minus 3.81 percent).

Moreover, the contraction in fuel prices (minus 4.61 per cent) continued for the seventh consecutive month, led by the continuing contraction in prices of high-speed diesel (minus 13.07 per cent). However, the prices of petrol (0.69 per cent) and liquefied petroleum gas (5.57 per cent) saw acceleration in the month.

Rajani Sinha, chief economist at CARE Ratings, says that the WPI crossed into positive territory for the first time in this financial year (2023-24, or FY24) due to a sharp uptick in wholesale food inflation along with the fading base effect pushed, even as deflation persisted in manufacturing products and fuel and power segments.

“For the remainder of FY24, we expect subdued WPI inflation below 2 per cent. Upside risks could emanate from food price pressures. However, the expected deflationary trend in the manufacturing segment, aided by lower metal prices and a sharp correction in global crude oil prices, would limit any significant upward movement in the WPI index,” added Sinha.

Echoing similar views, Aditi Nayar, chief economist at ICRA Ratings, says that the uptrend in domestic food prices as well as an unfavourable base are expected to push up the year-on-year WPI inflation to 1.5–1.7 per cent in December 2023.

“Nevertheless, the headline print is unlikely to increase substantially thereafter, amid expectations of commodity prices remaining benign,” added Nayar.

The uptick in factory gate inflation comes days after retail inflation bucked the downward trend and touched a three-month high in November due to a seasonal spike in vegetable prices.

Although the Reserve Bank of India (RBI) tracks retail inflation for its monetary policy, the uptick in WPI would end up impacting the Consumer Price Index, albeit with a time lag.

Last week, the Monetary Policy Committee of the RBI unanimously kept the repo rate unchanged at 6.5 per cent for a fifth consecutive policy review as RBI Governor Shaktikanta Das said that intermittent vegetable price shocks could once again push up headline inflation in November and December, but the monetary policy would look through such one-off shocks, though it needs to stay alert to the risk of such shocks becoming generalised.