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Wholesale food inflation at 17-month high

Deflation in manufacturing continues, food inflation picks up

BS Reporter  |  New Delhi 

Wholesale food inflation at 17-month high

Wholesale price index (WPI)-based deflation persisted for a 14th straight month in December, the index dropping 0.7 per cent as compared to one of almost two per cent in November.

However, food inflation rose to 8.17 per cent, the steepest in 17 months, from 5.2 per cent. This was on more expensive vegetable and non-vegetarian items, prompting economists to say the Reserve Bank of India might maintain a status quo in rates at next month’s policy review.

The overall deflation is already the longest in recent memory; it was 1975-76 when there was WPI-based price fall for a full year. The index last showed inflation in October 2014, at 1.66 per cent.

Official data showed on Thursday that the total build-up in wholesale inflation up to December was 0.74 per cent for the current financial year as compared to a 0.89 per cent fall in the corresponding period of the previous year. Price pressure points remained, particularly in food articles, where the build-up till December this financial year was 9.39 per cent, higher than the 7.46 per cent rise seen in the corresponding period of the previous year.

Within food articles, pulses’ inflation remained at elevated levels even as it moderated a bit, to 55.6 per cent in December from 58 per cent in November. For onions, prices remained elevated, rising almost 26 per cent, though the rate of inflation has steadily shown a downward trend, from 53 per cent in November and 85 per cent in October. Potato prices continued to beat the trend, falling 35 per cent in December and by 53.7 per cent in November.

Wholesale food inflation at 17-month high
Food prices rose on account of factors such as supply disruption after heavy rain in the south and seasonal trends such as a pick-up in demand for non-vegetarian protein items in the winter months.

Earlier data had shown that Consumer Price Index-based (CPI) inflation for December rose to a 15-month high of 5.61 per cent, against 5.41 percent in November.

This was because food inflation rose 6.4 per cent in December, compared with a 6.07 per cent rise in November -- food items have 45 per cent weight in CPI inflation and only 14 per cent in WPI inflation.

Aditi Nayar, senior economist at ICRA, said: “The considerably steeper increase in food inflation at the wholesale level than at the retail level in December poses some concern. On a sequential basis, food prices displayed a disparate trend in December, hardening at the wholesale level by 0.6 per cent and softening at the retail level by one per cent. The month-on-month uptick in wholesale food prices in December might be a precursor to a similar trend at the retail level in the ongoing month.”

“With the contraction in industrial output in November largely attributable to a one-off base effect, and the hardening of retail inflation and deceleration in wholesale deflation in December, we continue to expect RBI to pause until the fiscal targets for 2016-17 are revealed in the Union Budget,” said Nayar.

Non-food inflation in primary articles (non-processed items) rose to 7.7 per cent in December from 6.33 per cent in November. Oilseeds continued to show a rising tendency, with their prices rising 8.03 per cent in December compared to 6.92 per cent the previous month. For manufactured products, which have a combined weightage of 65 per cent in the WPI index, the rate of price fall declined to 1.36 per cent from 1.44 per cent in November. This reflects low global metal prices ,as well as subdued demand in the domestic economy that comes in the way of growth.

The manufactured food products sub-category, however, showed a slight increase of inflation at 1.98 per cent in December from 0.92 per cent in November. This was mainly due to edible oil prices rising 5.8 per cent from the earlier 4.45 per cent.

Sugar prices continued to drop, falling 8.27 per cent in December from 11.16 per cent in November.

Another area where prices remained depressed was fuel and power (15 per cent weightage ) down a little more than nine per cent in December, though less than the 11 per cent the previous month. All the sectoral components such as liquefied natural gas, petrol and high-speed diesel showed a reduction in prices, following global cues. Diesel fell 13.8 per cent in December, from 16.8 per cent in November.

“The trend in crude oil prices in the remainder of the month, as well as the extent to which retail prices of petrol and diesel, as well as excise duties on these items, are adjusted would influence whether WPI inflation reverses trend by recording a deeper contraction in January 2016,” Nayar said.

First Published: Fri, January 15 2016. 00:40 IST