Wholesale inflation rises to nine-month high of 0.73% in Dec; food, veggies turn costlier

New Delhi: The wholesale price index (WPI)-based inflation rose to a nine-month high of 0.73 per cent in December 2023, mainly due to a sharp rise in food prices.

The WPI inflation was in the negative zone from April to October and had turned positive in November at 0.26 per cent. In December 2022, it was 5.02 per cent.

"Positive rate of inflation in December 2023 is primarily due to increasing in prices of food articles, machinery & equipment, other manufacturing, other transport equipment and computer, electronics & optical products etc," the commerce and industry ministry said in a statement on Monday.

The last high level of WPI inflation was recorded in March 2023, when it was 1.41 per cent.

In December 2023, food inflation rose to 9.38 per cent from 8.18 per cent in November.

Within food articles, items that contributed significantly to wholesale inflation were paddy, pulses and vegetables.

Inflation in vegetables and pulses was 26.30 per cent and 19.60 per cent respectively, while in paddy it was 10.54 per cent in December 2023.

Within vegetables, onion inflation was 91.77 per cent and has been consistently in double digits since August 2023. Potato continued to be in deflation at (-)24.08 per cent in December.

In the fuel and power segment, inflation was (-)2.41 per cent, as against (-)4.61 per cent in November 2023. In manufactured products, inflation was (-)0.71 per cent, as against (-)0.64 per cent in the previous month.

Barclays in its report said the wholesale inflation trajectory shows input costs remain under control and the momentum in food and manufactured product prices eased significantly.

"We expect RBI to begin monetary easing from June, with three 25 basis points rate cuts in the current calendar year," Barclays said.

The Reserve Bank in its bi-monthly monetary policy last month held interest rates steady and flagged risks of rising food inflation in November and December.

Rating agency ICRA said the uptick in WPI inflation was led by items pertaining to fuel, food and crude, even as manufactured non-food items remained in the deflationary zone for the 10th straight month.

Looking ahead, the early data for January 2024 depicts a sequential fall in domestic prices of most food items, as well as a softening in global commodity prices.

"ICRA projects WPI inflation to rise marginally owing to the base effect, but remain below 1 per cent in January 2024 (+4.8 per cent in January 2023), and print at sub-1.5 per cent levels in February-March 2024, unless there is a sharp increase in global commodity prices," ICRA said.

India Ratings & Research Principal Economist Sunil Kumar Sinha said wholesale inflation continues to be benign as its largest component, manufactured products, having 64.23 per cent weight, is still in deflation.

Ind-Ra expects wholesale inflation to come in at 1.1 per cent in January 2024.

"However, in view of retail inflation still being higher than RBI’s comfort level, India Ratings and Research expects RBI to maintain a pause of the policy rate in the near term," Sinha said.

CareEdge Chief Economist Rajani Sinha said despite the fading of the supportive base, WPI inflation is expected to remain range-bound around 1 per cent for the remainder of this fiscal with continued easing in global commodity prices.

"However, uncertainty surrounding the Kharif harvest, the progress of Rabi sowing, geopolitical tensions in the Middle East, and global growth dynamics remain key monitorable," he added.

Core inflation was still in a deflationary mode at -0.5 per cent in December 2023, which is the 10th consecutive month of deflation due to the lower input costs (especially of commodities) in the manufacturing sector.

Retail or consumer price-based inflation (CPI) print for December rose to a 4-month high of 5.69 per cent, as per data released last week.