Economy

WPI dropped to 13.56 per cent in Dec, continues to be in double digit

Our Bureau | | Updated on: Jan 14, 2022
image caption

MPC not to press for rate review

Wholesale inflation dropped to 13.56 per cent in December as against 14.23 per cent in November. However, it is still the 9 th successive month of double-digit inflation.

WPI is also known as producers’ inflation. Though, this data is less significant now, this along with retail inflation based on Consumer Price Index (CPI) helps to understand overall price trend. Statistics Ministry, on Tuesday, had reported that retail inflation reached a five-month high of 5.59 per cent in December.

“The high rate of inflation (WPI) in December 2021 is primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products, textile and paper and paper products etc as compared to the corresponding month of the previous year,” Office of Economic Advisor in the Commerce & Industry Ministry said while releasing the monthly number related with WPI

Primary food inflation

One of reasons for WPI continue to be in double digit was jump in primary food and non-food inflation The primary food inflation surged to 9.6 per cent in December as against 0.1 per cent in October. Partly reflecting the impact of the spread of Omicron on global commodity prices, the YoY inflation for minerals, and crude and natural gas decelerated appreciably in December 2021 relative to the previous month.

Although the prices of various food items have displayed a seasonal downtrend, and the INR has appreciated in recent weeks, the global prices of several commodities have retraced an upward trajectory as the concerns around the impact of Omicron on global demand have abated. According to Aditi Nayar, Chief Economist with ICRA, a base effect will help moderate the WPI inflation as Q4 FY2022 progresses. However, the WPI inflation may only narrow fall back into single-digits in March 2022. 

“Notwithstanding the continued double-digit WPI inflation in December 2021, we expect the MPC to pause in February 2022. The duration of the current wave and the severity of restrictions will determine whether policy normalisation (change in stance to neutral along with hike in reverse repo rate) can commence in April 2022, or be delayed further to June 2022. Once normalisation commences, we subsequently expect two repo rate hikes of 25 bps each, followed by a pause to reassess the durability of growth,” she said.

Published on January 14, 2022

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