Wholesale inflation jumps to 9-month high in December

New Delhi: India’s wholesale inflation accelerated to a nine-month high in December, staying above the deflationary territory for a second straight month, driven primarily by an increase in prices of food articles.

Inflation based on the wholesale price index (WPI) rose to 0.73 % in December, accelerating from 0.26% in November, according to data released by the Ministry of Commerce and Industry on Monday. A year ago, wholesale inflation stood at 4.95%. Wholesale inflation remained in the negative territory between April and October last year due to a fall in prices of commodities like chemicals and chemical products, electricity, textiles, basic metals, food products, paper and paper products. Wholesale inflation entered the positive territory for the first time in seven months in November.

“Positive rate of inflation in December 2023 is primarily due to increase in prices of food articles, machinery and equipment, other manufacturing, other transport equipment and computer, electronics & optical products etc.,” the ministry said in a statement.

During December, food inflation rose to a four-month high of 9.38%, up from 8.18% in the previous month, due to a rise in the prices of paddy, cereals, pulses, vegetables, onion, fruits, and milk.

However, prices of other food articles such as wheat, potato, eggs, meat, and fish decelerated during the month. Prices of non-food articles declined by 4.73 %, crude petroleum and natural gas prices decelerated by 0.13 %, and fuel and power prices fell by 2.41%. Prices of manufactured products declined 0.71%.

WPI had remained in the deflationary zone earlier, helped by a favourable base and falling commodity prices, according to economists.

Experts had, however, expected the WPI to enter the positive territory from November due to the increasing food prices and a fading base effect.

“The push to wholesale inflation is mainly coming from food articles which recorded an inflation of 9.38% in December 2023. Within food articles, the items that are contributing significantly to the wholesale inflation are paddy, pulses and vegetables,” India Ratings & Research said in a statement.

“Core (inflation) is still in a deflationary mode in December (at -0.5%), and this is the tenth consecutive month of deflation due to the lower input costs (especially of commodities) in the manufacturing sector,” it added.

Meanwhile, retail inflation rose at its fastest pace in four months in December due to a sharp rise in prices of vegetables and other food items such as pulses, spices and cereals.

Consumer price index (CPI)-based inflation stood at 5.69% in December, up from 5.5% in November, 4.87% in October and 5.02% in September, though remaining within the Reserve Bank of India’s comfort zone of 2-6% for a fourth consecutive month, according to data released by the ministry of statistics and programme implementation last week.

In July, India’s retail inflation rose to a 15-month high of 7.4%, led by an increase in food prices spurred by seasonal fluctuations.

This prompted the government to strengthen buffers for essential food items, make periodic open market releases, and ease imports of essential food items through trade policy measures. The government also stepped in to prevent hoarding by revising stock limits and channelling supplies through designated retail outlets to curb inflation.

At its latest rate-setting meeting in December, RBI kept the policy repo rate unchanged at 6.5%.

Regulating interest rates is a key instrument for the central bank to control inflation. A higher interest rate regime makes borrowing costs more expensive, which can reduce demand among banks, other financial institutions and even the general public to borrow money. Reducing the supply of money in the market can also bring down consumer spending.

Meanwhile, Rating agency CARE Ratings Ltd. expects the WPI-based inflation to remain range-bound around 1% for the remainder of this fiscal year, with continued easing in global commodity prices.

“However, uncertainty surrounding Kharif harvest, progress of rabi sowing, geopolitical tensions in the Middle East, and global growth dynamics remain key monitorables,” said Rajani Sinha, chief economist, CARE Ratings.