Wholesale price inflation data released on Thursday showed partial signs of emerging from a disinflationary cycle, but the underlying cause — a spike in food inflation — offered little comfort for policymakers.
The wholesale price index (WPI) came at (-) 0.73 per cent in December, against (-) 1.99 per cent in November, confirming the gradual decline in disinflation in recent months, but it disquietingly remained in negative territory for the 14th month in a row. The only solace: the latest contraction was the slowest in a year.
Industry bodies noted that the deflationary trend persists in the economy and sought Reserve Bank of India action to aid industrial recovery.
Most economists do not see much easing of the interest rate cycle in 2016, but feel that atoken 25 basis points cut in policy rates may come after the Union Budget.
The WPI data for December was nevertheless less worrisome than the (-) 1.99 per cent recorded in November. The corresponding data for October now stands revised to (-) 3.7 per cent from (-) 3.81 per cent recorded earlier.
The gradual decline in disinflation in recent months could partly be attributed to the base effect wearing off, say economists. The drag-down may also have been arrested by a slowdown in the pace of deflation in manufactured product prices. Manufactured products – which have a 65 per cent weightage in the WPI – contracted 1.36 per cent in December.
However, disinflationary pressures are likely to persist in January given the continued weakness in global commodity space, the yuan devaluation and a few domestic factors, analysts said.
Basic metals and alloys, which account for 11 per cent in the WPI, declined 8.74 per cent in December as against a contraction of 0.24 per cent in the samemonth last year.
Food inflation inches up Food inflation — which has a weightage of 14 per cent in the WPI — shot up to 8.17 per cent in December 2015 from 5.2 per cent in November last year.
A sharp spike in onion prices (26 per cent on a year-on-year basis) and pulses (56 per cent on a year-on-year basis) accounted for the jump in overall food inflation.
Food inflation has been on the rise in recent months, with the October print coming at 3 per cent on a year-on-year basis.
Aditi Nayar, Senior Economist, ICRA Ltd, said that the considerably steeper increase in food inflation at the wholesale level than at the retail level in December poses some concern.
On a sequential basis, food prices displayed a disparate trend in December 2015, hardening at the wholesale level by 0.6 per cent and softening at the retail level by 1.0 per cent.
“With the contraction in industrial output in November 2015 largely attributable to a one-off base effect and the hardening of retail and wholesale inflation in December 2015, we continue to expect the RBI to pause until the fiscal targets for 2016-17 are revealed in the Union Budget,” Nayar said.
The WPI trend in January will hinge on how crude oil prices fare in the rest of the month, and on the extent to which retail prices of petrol and diesel as well as excise duties on these items are adjusted, she added.
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