At 12.5%, October WPI surges to a 5-month high

Producers’ inflation based on Wholesale Price Index (WPI) surged to 12.5 per cent in October against 10.7 per cent in September — a five-month high and the second highest in the current series (base year 2011–12).

According to a statement issued by the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT), producers’ inflation is following retail inflation, which rose to 4.48 per cent in October.

“The high rate of inflation in October is primarily due to a rise in the prices of mineral oils, basic metals, food products, crude petroleum and natural gas, chemicals and chemical products etc compared to the corresponding month of the previous year,” it said.

Economists divided

Economists believe a duty cut on fuel will have some impact on wholesale inflation. However, they are divided on the trend in the coming months. Some also feel that considering inflationary expectation, the monetary policy committee (MPC) may change its stance and hike policy rates, at least in the February review.

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Inflation for fuel and power jumped to 37.18 per cent in October against 24.81 per cent in September. Inflation for primary articles (agricultural produce and others) dropped a bit, but it rose for manufactured products.

Aditi Nayar, Chief Economist with ICRA Limited, said the core index recorded a month-on-month jump of 1 per cent with a widespread uptick across the sub-groups reflecting pervasive commodity price pressures, pushing up the YoY inflation to an all-time high of 11.9 per cent in October 2021. Only three of the sub-groups of non-food manufactured products recorded a flat or declining MoM trend in October 2021.

Passing on input costs

“With demand reviving, we expect producers to start passing through higher input and freight costs, even as tax cuts on fuels offer them a breather. Led by the base effect, we expect the WPI inflation to moderate in the months ahead and print at 7.5–8.5 per cent in March 2022.”

Sunil K Sinha, Principal Economist with India Ratings and Research, said that as supply disruption has yet to normalise in many areas and manufacturers are becoming more confident about demand recovery, they are increasingly passing on the higher input costs to their output prices.

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Since fuel is a major input into transportation cost, higher fuel prices push up distribution cost further. Consequently, inflation in seven groups — textiles, paper, chemicals, rubber and plastics, basic metals, fabricated metals, and furniture — has been in double-digits now for five successive months, with paper, chemicals, rubber & plastics touching a new high in October 2021.

Sustained inflation likely

With the coal shortage abating, the unexpected spurt in spot electricity prices is expected to moderate in the near term. However, with Brent crude breaching the $82/barrel mark in international markets, fuel inflation is unlikely to provide any breather going forward.

“The recent outbreaks of Covid cases in China and Europe indicate that the challenge of Covid-19 has not yet ended. Therefore, India Ratings & Research opines that wholesale inflation is likely to remain at elevated levels in the near term,” Sinha said.

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