Wholesale price inflation falls to 1.22% in December

Data released by National Statistical Office (NSO) showed that food inflation fell to 0.92% in December, as onion price dropped sharply (-54.69%) while core inflation excluding food and fuel inflation rose to 4.2%, trigging concerns over the inflation trajectory going forward.

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Aditi Nayar, principal economist at ICRA Ltd, said sharp the rise in core inflation, partly reflects higher commodity and metal prices, as well as a rise in pricing power, in line with the revival in global demand with the roll out of covid-19 vaccines.

"The surge in the core-WPI inflation has completely doused any lingering hope that the dip in the December CPI inflation would be adequate for rate easing to recommence in the upcoming policy review," Nayar added.

Data released on Monday showed retail inflation slumped to a 14-month low in December to 4.59%, returning to the comfort zone of the Reserve Bank of India (RBI)’s as food inflation declined.

The Indian economy is projected to contract a record 7.7% in FY21, a first in 41 years, with the NSO assuming 0.6% growth in the second half (October-March) the fiscal.

The Reserve Bank of India has kept its policy rates unchanged in its last monetary policy review while maintaining accommodative stance to support the nascent economic recovery and is expected hold rates in its upcoming policy review early next month.

"The outlook for inflation has turned adverse relative to expectations in the last two months. The substantial wedge between wholesale and retail inflation points to the supply-side bottlenecks and large margins being charged to the consumer," it had said in its December policy review.