WPI inflation rises to 2.03% in January

Wholesale price-based inflation (WPI) for January 2021 came in at 2.03 per cent, higher than the 1.22 per cent recorded in December 2020. This jump was contrary to the market’s expectations of a soft print and despite a dip displayed by the Consumer Price Index (CPI), say economy watchers.

The latest wholesale price index (WPI) print is , however, much lower than the 3.52 per cent recorded in January last year, official data from the Office of the Economic Advisor, Department for Promotion of Industry and Internal Trade (DPIIT), showed. The November 2020 WPI inflation has now been revised at 2.29 per cent

The sharp rise in the WPI in January was led by manufactured non-food products (core items), fuel and power, and crude petroleum and natural gas, even as the primary food inflation eased. Core inflation came in at a 27-month high of 5.1 per cent in January 2021.

Manufactured products inflation, which has 64 per cent weight in the index increased to 5.13 per cent from a level of 4.24 per cent. However, the primary articles index saw a contraction of 2.24 per cent and fuel and power too saw a contraction at 4.78 per cent.

The food index, comprising ‘food articles’ from primary articles group and ‘food product’ from manufactured products group, saw a contraction of 0.26 per cent as against inflation of 0.92 per cent in the previous month.

Commenting on the latest WPI print, Madan Sabnavis, Chief Economist, CARE Ratings, said that the WPI number is moving contrary to the CPI as manufactured goods inflation has increased sharply to 5.1 per cent -- successive increases since the economy unlocked. This is good for industry as it shows that pricing power has been restored. However, an anomaly caused by statistics is the decline in fuel inflation given that petrol and diesel are at high levels, he added.

Aditi Nayar, Vice President, ICRA Limited, said “ We now expect the WPI to average 5-5.5 per cent in FY2022, unless the available vaccines turn out to be ineffective against new Covid-19 variants, causing commodity prices, consumer confidence and business sentiment to plunge.”.

With the exceptionally low base related to the crash in fuel prices in Q4 FY2020, juxtaposed with the hardening of crude oil as well as other commodity prices in the ongoing month, the headline WPI inflation is set to record large upticks over the course of the next few months, she said.

“We expect the CPI inflation to have bottomed out in January 2021, with large upticks expected in the next two prints. This, combined with the anticipated hardening in the core-WPI inflation, reaffirms our view that there is no room for further rate cuts in this cycle”, Nayar said.

ICRA is of the view that rising demand and strengthening pricing power will make core inflation rise further to as much as 7.0-7.5 per cent during Q1 FY2022.

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