15 January 2020
New Delhi: An unfavourable base effect, along with higher prices of food items and those of primary articles, accelerated India's annual rate of inflation based on wholesale prices to a 7-month high of 2.59 per cent in December from 0.58 per cent in November.
However, on a year-on-year (YoY) basis, the Wholesale Price Index (WPI) data furnished by the Ministry of Commerce and Industry on Tuesday showed a decelerating trend during December 2019, as inflation had risen to 3.46 per cent during the corresponding period of 2018.
"Build up of inflation rate in the financial year so far was 2.42 per cent compared to a build up rate of 2.92 per cent in the corresponding period of the previous year," the ministry said in its review of 'Index Numbers of Wholesale Price in India' for December.
On a sequential basis, the expenses on primary articles, which constitute 22.62 per cent of the WPI's total weightage, increased to 11.46 per cent from 7.68 per cent.
Furthermore, the prices of food items increased at a faster rate of 13.24 per cent from 11.08 per cent.
The key macro economic inflation data comes a day after Consumer Price Index (CPI) for December showed an accelerating trend. It touched a 65-month high at 7.35 per cent from 5.54 per cent in November.
Last month, the RBI, in its monetary policy review statement, had predicted the CPI-based inflation to rise in the coming quarters.
"Going forward, the inflation outlook is likely to be influenced by several factors. First, the upsurge in prices of vegetables is likely to continue in the immediate months; however, a pick-up in arrivals from the late kharif season along with measures taken by the government to augment supply through imports should help soften vegetables prices by early February 2020," the Fifth Bi-monthly Monetary Policy Statement, 2019-20 said.
"Second, incipient price pressures seen in other food items such as milk, pulses, and sugar are likely to be sustained, with implications for the trajectory of food inflation. Third, both the 3-month and 1-year ahead inflation expectations of households polled by the Reserve Bank have risen and these latent sentiment upsides are being reflected in other surveys as well."
"The broad-based uptick in the WPI inflation in December 2019 was partly driven by an unfavourable base effect related to fuel and power, minerals, and crude petroleum and natural gas.
"... The double-digit primary food inflation of 13.2 per cent in December 2019, driven by a 70 per cent inflation for vegetables, remains a source of concern. Moreover, inflation for manufactured food products rose appreciably in December 2019, driven by various edible oils and fats, and dairy products," it added.
Economy watchers predicted that spike in both wholesale and retail inflation will hamper chances of a lending rate cut by the RBI in February.
India Ratings and Research's Principal Economist Sunil Sinha said: "Retail inflation at 7.35 per cent and wholesale inflation at 2.59 per cent though presents a contrasting picture, the nominal anchor for RBI is retail inflation."
"With retail inflation now higher than the targeted level, India Ratings and Research believes irrespective of the fiscal stance taken by the government in Union Budget FY21, the RBI is unlikely to utilise the limited window for a rate cut in its February monetary policy review."