WPI inflation hits 22-month low of 4.95% in December | The Financial Express

WPI inflation hits 22-month low of 4.95% in December

Easing inflation to help govt push for growth in Budget

inflation, WPI inflation
WPI food inflation eased to 0.65% in December from 2.17% in the previous month, having witnessed a steady decline from 10.06% in August. (IE)

Inflation based on the wholesale price index (WPI) decelerated at a faster-than-anticipated pace to hit a 22-month low of 4.95% in December, according to the industry ministry data released on Monday. The base effect remained favourable and a further moderation in price pressure in core and food items, especially fruit and vegetable, offset a rise in fuel and power inflation.

Easing inflation — retail inflation hit a 12-month low of 5.72% in December — offers some much-needed respite to policymakers as they draw up the Budget for FY24, seeking to spur growth without stoking fresh price pressure. It also eases pressure on the Reserve Bank of India (RBI) to go for another round of aggressive rate hike, although some analysts still reckon the monetary policy committee (MPC) will likely raise the repo rate by up to 25 basis points in February to 6.5% before taking a pause. This is the last set of inflation numbers before the announcement of the FY24 Budget and the monetary policy review in February.

WPI inflation has now moderated in each month since hitting an over 30-year high of 16.63% in May. Retail inflation, too, has dropped for a third straight month in December and remained within the RBI’s tolerance limit of 6% for two months in a row.

Going forward, an expected further moderation in global commodity prices due to a demand slowdown in the wake of rate hikes by key central banks will likely encourage both the fiscal and monetary authorities in India to step up focus on the fragile growth in the coming months. Favourable base effect, too, will add to their comfort.

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India’s real economic growth is expected to slow down to about 6% in FY24, against an estimated 7% for the current fiscal. While both private consumption — the main pillar of the economy — and exports are expected to slow down further amid growing external turmoil, support to growth is expected from an elevated investment rate, driven substantially by public capex.

The latest data show the WPI inflation has now dropped below retail inflation in December for a second straight month since February 2021, indicating that the pass-through of elevated input costs to finished product prices is almost over. The WPI-CPI inflation gap also widened to 75 basis points in December, against 3 basis points in the previous month.

Lower WPI inflation usually augurs well for corporate earnings and operating margins. The risks of “imported inflation” are also limited, given the moderation in international commodity prices, especially of energy products, and relatively strong rupee.

Icra chief economist Aditi Nayar expected WPI inflation to “print between 4.5% and 4.9% in January, before easing to sub-2% by March, unless commodity prices post a strong rebound”. India Ratings principal economist Sunil Kumar Sinha forecasts that WPI inflation will likely come in around 3.1% in the March quarter, given the high base effect and softening of global commodity prices.

Even a month-on-month seasonally-adjusted basis, WPI inflation recorded a fall of 0.47%, according to Sinha. The decline was to the tune of 0.15% in November.

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Of course, at the retail level, core inflation still remained elevated at about 6.05% in December and the latest easing was driven mainly by slower price pressure in food. However, core WPI inflation eased to a 25-month low of 3.2% in December from 3.4% in the previous month.

WPI food inflation eased to 0.65% in December from 2.17% in the previous month, having witnessed a steady decline from 10.06% in August. The broader primary articles inflation hit a 23-month low of 2.4% in December, while the manufacturing inflation dropped to a 25-month low of 3.4%. However, fuel & power inflation inched up to 18.1% in December from a 20-month low of 17.4% in November, mainly as electricity inflation shot up to 16.6%from a 15-month low of 9.5%.

Although the broader WPI food inflation has been easing, there are pockets of concern, Sinha pointed out. Cereals witnessed fifth straight month of double-digit inflation and hit a 113-month high in December. Milk inflation rose to a 92-month high of 7% in December, pushing dairy products inflation to a 100-month high of 14.4.%.

For its part, the RBI has hiked the repo rate by 225 basis points since May to 6.25% to tame inflation. Last month, RBI governor Shaktikanta Das said the central bank would keep “Arjun’s eye” on the evolving inflation dynamics and that war on price pressure would continue.

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First published on: 17-01-2023 at 00:45 IST