Wholesale price inflation scaled a 30-month high of 5.25 per cent in January, thanks primarily to a favourable base effect and as elevated core and fuel inflation more than offset deflationary pressure in primary food articles induced by demonetisation.
Core inflation rose to a 28-month peak of 2.7 per cent in January and at 18.1 per cent, price pressure in fuel touched the highest in the current series, although food inflation hit -0.54 per cent in January, the official data released on Tuesday showed. Retail inflation plunged even at a sharper pace to touch a five-year low of 3.17 per cent in January.
Analysts said food inflation, which has remained subdued in recent months, is likely to be a key driver, along with fuel, of both wholesale price and retail inflation gauges in the coming months as seasonal impact turns unfavourable for food articles, especially vegetable and fruit. This will prevent any prospects of a rate cut anytime soon.
According to DK Joshi, chief economist at CRISIL, even CPI inflation could see “upside pressures hereon as some benefits from a high-base effect will begin to wear out and as the imported component of inflation nudges up”. Also, as the economy is remonetised, some pent-up demand will have returned, he said.
The stickiness in core inflation despite continued decline in other parts of the index is a worry since wage-price negotiations based on a sticky core can potentially lift overall inflation, he added.
On the wholesale price front, the acceleration in January was driven by higher input costs (non-food primary articles, minerals, fuel, basic metals), which more than offset the tepid food inflation reading (barring sugar) caused by demonetisation, said Nomura’s Sonal Varma. The coking coal index (0.4 per cent weighting in the WPI) rose by 84 per cent month-on-month, after not changing for three years, she added. However, there was no sign of demand-pull inflation, as prices of manufactured products such as wood, leather, non-metallic mineral products, machinery & machine tools and transport equipment declined month-on-month in January, she added. FE