New Delhi: India’s wholesale price index-based inflation climbed to a two-month high of 2.37% year-on-year in December, according to the provisional data released by the Ministry of Commerce and Industry on Tuesday.
The rise in WPI-based inflation in December wasn’t a surprise to experts. It was driven by a sharper increase in the prices of primary articles and manufactured goods than in the previous month.
A Reuters poll of economists had expected wholesale inflation to rise by around 2.3% year-on-year in December, up from 1.89% in November.
The WPI, a proxy for producers’ prices, had risen by 0.86% year-on-year in December 2023.
Food prices, a major contributor to the index, rose by 8.89% year-on-year in December, compared to an 8.92% rise in the previous month.
In December, vegetable prices climbed 28.65% year-on-year, up from a 28.57% rise in the previous month, while cereal prices rose 6.82% against a 7.81% rise a month ago.
The price of pulses rose 5.02% year-on-year in December, compared to 5.97% in November.
Food prices have remained elevated for over a year, primarily during November 2023-June 2024 due to uneven and below-normal monsoon rains.
While overall food inflation slowed in December from the previous month, the prices of onion, fruits, eggs, meat and fish rose at a higher pace during the month as compared to November.
“The prices of major vegetables, such as tomato, onion and potato, have declined quite sharply on a sequential basis in January 2025 so far. However, the relatively lower weight of vegetables in the WPI vis-à-vis the CPI would limit the benefits on this account to the headline WPI inflation in the month,” said Rahul Agrawal, senior economist at Icra Ltd.
Agrawal expects WPI-based inflation to rise further by about 3% year-on-year in January, with the uptick in crude oil and commodity prices and the depreciation in the US dollar-rupee pair pushing up the print, along with an unfavourable base.
He added that import duty hikes on most varieties of edible oil undertaken in mid-September is expected to weigh on the annual WPI-food inflation print in January.
Prices of non-food articles rose 2.46% year-on-year in December, compared with a contraction of 0.98% in the previous month.
“The core (non-food manufacturing) WPI inflation inched up slightly to a five-month high of 0.7% in December 2024 from 0.5% in November 2024, while remaining below the 1.0%-mark for the fifth consecutive month,” Agrawal said.
Fuel and power prices fell 3.79% year-on-year in December, compared to a 5.83% annual decline in the previous month.
Crude petroleum and natural gas prices fell by 6.77% annually in December, against the 8.11% annual contraction reported in the previous month.
Manufactured products’ prices rose 2.14% annually in December, compared to a 2% rise in the previous month.
Prices of primary articles—which include food articles, non-food articles, minerals, and crude petroleum and natural gas—rose 6.02% year-on-year in December, compared to a 5.49% annual rise in the previous month.
Headline retail inflation, a key indicator for the Reserve Bank of India’s policy decisions, has averaged about 5.4% over the past 12 months, with food inflation remaining high in the first half of 2024-25 as weather-related disruptions pushed up the prices of vegetables, cereals, and other essential food items.
Retail inflation, based on the Consumer Price Index (CPI), rose 5.22% in December, down from 5.48% in November and 5.69% a year ago.
Following the release of the retail inflation data for December on Monday, economists expect a status quo on RBI’s repo rate in the upcoming monetary policy committee (MPC) meeting in February. RBI has not cut the repo rate since February 2023.
Also read | Inflation is down: Will interest rates follow?
Regulating interest rates is a key for the central bank to control inflation.
A higher interest rate regime makes borrowing costs more expensive, reducing demand among banks, financial institutions, and the general public, which can, in turn, bring down consumer spending and inflation.
RBI’s medium-term target for CPI inflation is 4% within a band of plus or minus 2%.
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