Rising global commodity prices and an unfavourable base effect helped wholesale price index (WPI) inflation inch up to a two-month high of 3.39 per cent in December 2016.
The latest WPI print was substantially higher than the contraction of 1.06 per cent in December 2015 and growth of 3.15 per cent in November.
Manufactured products inflation — which largely contributed to the uptick in December 2016 WPI — came in at a 14-month high of 3.37 per cent, higher than 3.2 per cent in the previous month.
However, food inflation has turned negative for the first time since August 2015 at (-) 0.7 per cent in December 2016 as against 1.54 per cent in the previous month.
Primary food inflation was sub-zero after a gap of 15 months, led by a month-on-month plunge in vegetable prices, as well as modest correction in prices of fruits and pulses. However, the extent of decline in prices of perishables and pulses at the wholesale level exceeded the correction at the retail level.
Rate cut hope WPI and CPI (which softened to 3.41 per cent in December) are almost converging in December 2016, giving room for the RBI to undertake expansionary monetary policies in February during the next round of the monetary policy review. In the coming months, there is high probability of WPI inching up and CPI softening. The RBI, which is expected to be more guided by CPI movements, is expected to frontload its rate cuts for this year, say economists.
Reacting to the latest WPI print, Aditi Nayar, Principal Economist, ICRA Ltd, said that the trajectory of WPI inflation is likely to chart a rise in January and February, before recording a dip in March.
“In ICRA’s view, the wedge between the two inflation metrics would re-emerge in January, with WPI inflation expected to exceed CPI inflation for the next few readings,” she added.
CARE Ratings, said in a note that the marginal uptick in inflation has come from increased non-food articles, fuel and power and manufactured products.
“We do expect WPI inflation to remain in the range of 3.5-4 per cent for the rest of the year primarily due to increase in the price of crude oil and other manufactured products.
“This will help corporates in regaining their pricing power. Also, it will be beneficial for calculation of GDP in nominal terms which last year was impacted by declining WPI,” said a CARE Ratings spokesperson.