Producers’ inflation based on Wholesale Price Index (WPI) slipped to 22-month low of 4.95 per cent in December. Earlier, retail inflation too had dropped to a one year low of 5.72 per cent in December.

With both rates of inflation going down, the Monetary Policy Committee is now expected to come under pressure for a pause in policy interest rates rise. However, some experts still see at least 25 basis points hike in February as CPI is still over the median rate of targeted inflation range of 4 per cent.

According to data released by Commerce & Industry Ministry, WPI-based inflation declined to 4.95 per cent in December against 5.85 per cent in November, mainly due to fall in prices of food articles and crude petroleum. “The decline in the rate of inflation in December is primarily contributed by fall in prices of food articles, mineral oils, crude petroleum & natural gas, food products, textiles and chemicals & chemical products,” a statement issued by the Ministry said.

Food prices

Inflation in food articles was (-)1.25 per cent, while in fuel and power it was 18.09 per cent during December. Inflation in manufactured products was 3.37 per cent during the month, the Commerce and Industry Ministry said in a statement. At the broad-segments level while the primary articles inflation declined to a 23-month low of 2.4 per cent, the manufacturing inflation edged down to a 25-month low of 3.4 per cent in December. However, the fuel and power inflation rose to 18.1 per cent in December from a 20-month low of 17.4 per cent in the previous month.

A report prepared by ICRA said the CPI inflation exceeded WPI’s in December for the second consecutive month, and the wedge between the two widened to 75 bps, from just 3 bps in November with the extent of the decline in the former being constrained by stickiness in the core-CPI inflation.

Notwithstanding the sequential fall in average wholesale prices of several food items in early-January 2023, the YoY food inflation is likely to witness an uptick in the month on account of an unfavourable base. However, the monthly average of the USD/INR pair has strengthened in January so far, relative to December, amidst a fall in the dollar index, which is likely to augur well for the landed cost of imports in the ongoing month.

“Overall, we project the WPI inflation to print between 4.5-4.9 per cent in January, before easing to sub-2 per cent by March, unless commodity prices post a strong rebound,” the report said.

Core inflation down

Another report prepared by Paras Jasrai (Analyst) and Sunil Kumar Sinha (Principal Economist) of India Ratings & Research (Ind-Ra) says core inflation declined to a 25-month low of 3.2 per cent in due to the lower input costs especially of commodities.

“Ind-Ra believes due to the high base effect and softening of global commodity prices, the wholesale inflation is expected to come in around 3.1 per cent in 4QFY23,” it said.

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