Wholesale price index (WPI)-based inflation for January came in at 2.03 per cent, higher than the 1.22 per cent print recorded in December 2020. This jump was contrary to market’s expectations of a soft print and despite a dip displayed by the Consumer Price Index (CPI), say economy watchers.
The latest WPI print was, however, much lower than the 3.52 per cent level 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 finalised at 2.29 per cent.
Policy makers are more guided by the CPI for monetary policy decisions. This has been the case after the Reserve Bank of India (RBI) adopted CPI in August 2016 as its key measure of inflation. However, inflation based on both CPI and WPI is closely monitored but by different audiences.
The different weightage assigned to various goods in two baskets comprising these two indices is also a reason for the differences between the two indices.
The sharp rise in the WPI inflation in January was led by manufactured non-food products (core items), crude and natural gas, even as the primary food inflation eased. Core inflation came in at a 27-month-high of 5.1 per cent.
Manufactured products inflation —which accounts for 64 per cent weightage in the index — increased to 5.13 per cent. However, the primary articles index saw contraction of 2.24 per cent and fuel and power too saw a contraction at 4.78 per cent.
Meanwhile, 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.
Experts’ comment
Madan Sabnavis, Chief Economist, CARE Ratings, said, “WPI inflation 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 reining at their highest levels, he added.
Aditi Nayar, Vice-President, ICRA Limited, said, “We now expect the WPI inflation to average 5-5.5 per cent in FY22, unless the available vaccines turn out to be ineffective against the 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 FY20, 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 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 7-7.5 per cent during Q1 FY2022.