Higher food prices push WPI inflation to 9-month high in December

India’s wholesale price index (WPI)-based inflation rate rose to a nine-month high of 0.73 per cent in December, mainly due to an increase in prices of food articles, data released by the ministry of commerce and industry showed on Monday.

This is the second consecutive month that the wholesale inflation rate had remained in positive territory after there was deflation for seven consecutive months till October 2023.

In November, the factory gate inflation stood at 0.26 per cent.

Inflation for food items rose to a four-month high of 9.38 per cent in December 2023 from 8.18 per cent in the previous month. It was led by acceleration in the prices of paddy (10.54 per cent) and vegetables (26.3 per cent).

Meanwhile, the prices of onion (91.77 per cent) and pulses (26.3 per cent) decelerated in December but still remain high.   

On the other hand, the prices of other food articles like wheat (-0.40 per cent), potato (-24.08 per cent) and protein-rich items like eggs, meat, and fish (-0.84 per cent) contracted during the month.

Besides, data showed that the deflation in prices of manufactured products (-0.71 per cent) continued for the 10th consecutive month in December.

It was led by continuing contraction in the prices of manufactured food products (-1.59 per cent), vegetable and animal oil (-16.36 per cent), textiles (-2.91 per cent), paper (-6.67 per cent), chemicals (-5.69 per cent), metals (-2.58 per cent), rubber (-0.55 per cent), and steel (-3.36 per cent).

Moreover, the contraction in fuel prices (-2.41 per cent) continued for the eighth consecutive month. It was led by the continuing contraction in prices of high-speed diesel (-6.72 per cent). However, the prices of petrol accelerated slightly during the month (1.09 per cent).

Rajani Sinha, chief economist at CARE Ratings, said that the WPI remained in positive territory for the second time this financial year (FY24). It was due to a sharp uptick in wholesale food inflation along with the fading base effect, even though deflation persists in manufacturing products and fuel and power segments.

“Despite fading of a supportive base effect, WPI inflation is expected to remain range bound at around 1 per cent for the remainder of this financial year with continued easing in global commodity prices. However, uncertainty surrounding kharif harvest, progress of rabi sowing, geopolitical tensions in West Asia, and global growth dynamics remain key monitorables,” added Sinha.

Uptick in factory gate inflation comes days after retail inflation rose to a four-month high of 5.69 per cent in December. It was up 14 basis points (bps) from November due to a seasonal spike in food prices led by vegetables, fruits and pulses.

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 (CPI), albeit with a time lag.

Rajani Sinha, chief economist at CARE Ratings, says that the WPI remained in the positive territory for the second time in this financial year (FY24) due to a sharp uptick in wholesale food inflation along with the fading base effect, even though deflation persists in manufacturing products and fuel and power segments.

“Despite the fading of a supportive base effect, WPI inflation is expected to remain range-bound around 1 per cent for the remainder of this financial year with continued easing in global commodity prices. However, uncertainty surrounding the Kharif harvest, progress of Rabi sowing, geopolitical tensions in the Middle East, and global growth dynamics remain key monitorables,” added Sinha.

The uptick in factory gate inflation comes days after retail inflation rose to a four-month high of 5.69 per cent in December, up 14 basis points from November due to a seasonal spike in food prices led by vegetables, fruits, and pulses. 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.