Producers’ inflation based on the Wholesale Price Index (WPI) reached an all-time high in the current series at 14.2 per cent in November. This is the eighth successive month of double digits WPI.

“The high rate of inflation in November 2021 is primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products etc. as compared to the corresponding month of the previous years,” the Office of the Economic Advisor in Department for Promotion of Industry and Internal Trade (DPIIT) said.

Rise in WPI-based inflation rate is on a higher side in comparison to retail inflation based on the Consumer Price Index (CPI) which rose to a three-month high of 4.9 per cent in November. Although WPI inflation is more academic in nature, it shows price trends of inputs and finished products at the production rate. Also, it provides some basic thought for overall monetary policy regime.

The most important factor behind the WPI surge was the jump in inflation to 4.9 per cent for primary food products from the disinflation of 1.7 per cent, in addition to the rise displayed by minerals, fuel and power, crude petroleum and natural gas as well as core-WPI. Only primary non-food articles and manufactured food products recorded a softening in the y-o-y inflation print in November 2021, while continuing to print in double digits. The inflation for headline and core-WPI, and fuel and power printed at all time high levels in November.

Forecast

According to Aditi Nayar, Chief Economist with ICRA, although the prices of various food items have displayed a seasonal downtrend and those of several commodities have corrected to an extent following the reality check provided by the Omicron variant, the INR has depreciated in recent sessions, which would curtail the extent of moderation in the WPI inflation in December. “We now forecast the WPI inflation to average 11.5-12 per cent in FY2022, with the headline and core inflation expected to continue to print in double-digits over the next three months and one month, respectively,” she said.

Sunil Kumar Sinha, Principal Economist with India Ratings & Research (Ind-Ra) said that core inflation (overall inflation minus food & fuel) climbed to a fresh high of 12.3 per cent in November. This was the fifth successive month in which they have remained in excess of 11 per cent. Sticky core inflation indicates that manufacturers are increasingly passing on the higher input costs to their output prices despite uneven recovery in demand. Since fuel is a major input into transportation cost, higher fuel prices push up the distribution cost further.

“Going forward, any relief on the fuel front seems unlikely. Although the Brent crude has softened from the recent high of $84/barrel, it still remains above $72/barrel in the international markets. Furthermore, the spread of the Omicron variant in Europe and the US may not let the disruption in global supply chains to normalise and may also keep transportation and logistics cost high. India Ratings & Research therefore expects the wholesale inflation to remain at elevated levels in the near term,” he said.

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