Dec WPI eases slightly but remains in double digits as food prices soar

Bucks a 4-month rising trend in December 2021 and comes in at 13.56%, even as food prices harden

Wholesale Price Index-based Inflation (WPI) eased a bit in December from November, but stayed in double digits for the ninth consecutive month, data released by the commerce ministry on Friday showed.
 
WPI inflation bucked a four-month rising trend and came in at 13.56 per cent, even as food prices hardened. Factory-gate inflation in November was 14.23 per cent, while it was 1.95 per cent in December 2020.

“The high rate of inflation in December 2021 is primarily due to rise in prices of mineral oils, basic metals, crude petroleum and natural gas, chemicals and chemical products, food products, textile and paper and paper products etc as compared to the corresponding month of the previous year,” the commerce ministry said.

WPI food inflation rose to a 23-month high of 9.24 per cent in December, against 4.88 per cent in November. The rate of increase in vegetable prices jumped to 31.56 per cent, against 3.91 per cent in the previous month.

“The primary food inflation has spiked from the marginal 0.1 percent in October 2021 to an unpleasant 23-month high in December 2021, reflecting the unfavourable base particularly for vegetables. Even as global commodity prices corrected on account of the impact of Omicron, domestic producers undertook price increases in various sectors to protect margins against the cumulative impact of the rise in input costs,” said Aditi Nayar, the chief economist at ICRA.

“Notwithstanding the continued double-digit WPI inflation in December 2021, we expect the MPC to pause in February 2022. Once normalisation commences, we subsequently expect two repo rate hikes of 25 bps each, followed by a pause to reassess the durability of growth," Nayar said.

The Reserve Bank of India (RBI) is slated to announce its monetary policy on February 9.
Sunil Kumar Sinha, the principal economist, India Ratings, said that part of the reason for the rise in fruits and vegetables inflation is supply disruption caused by excess rainfall in the southern parts of the country. In addition, cereals inflation rose to 5.1 per cent in December, a 22-month high. Edible oils inflation, despite some easing, is at an elevated level of 16.84 per cent, Sinha said.

“Fuel prices in the international markets somewhat softened due to concern over the spread of Omicron but Brent crude at $74.22/barrel in December 2021 is still keeping the fuel cost in the India market high,” Sinha said.

Sinha said that going forward, fuel prices are expected to stay at elevated levels. “Flare up in Covid cases due to the Omicron variant will jeopardise the normalisation of global supply chains with an upward pressure on transportation and distribution costs. Against this backdrop, we expect wholesale inflation to be in double-digits in the rest of the fiscal,” he said.