Wholesale price index (WPI)-based inflation surged to a seven-month high of 2.59 per cent in December 2019, as against 0.58 per cent in November, due to a sharp rise in prices of food articles like onions and potatoes, according to the data released by the Ministry of Commerce & Industry on Tuesday. WPI was at 3.46 per cent in December 2018.
The inflation for food articles rose to 13.24 per cent in December, as against 11.08 per cent a month earlier, while for non-food articles it rose nearly fourfold to 7.72 per cent from 1.93 per cent in November. Analysts note that the tight fiscal position of the central government, along with rising retail inflation, means the Reserve Bank of India (RBI) will have limited room to cut policy rates next month.
Among food articles, vegetable prices surged 69.69 per cent on account of onion prices, which witnessed a 455.83 per cent jump, followed by potatoes at 44.97 per cent. Onion prices ruled above Rs 100 per kg in various markets till recently because of crop damage by excessive rains. WPI data came just a day after Consumer Price Index (CPI)-based inflation data showed retail inflation rising to about five-and-half-year high of 7.35 per cent in December 2019, surpassing the RBI’s comfort level.
Limited room for Reserve Bank to cut rates
Even as retail inflation has surged to a five-and-a-half-year high of 7.35 per cent in December, wholesale inflation, while rising to a seven-month high of 2.59 per cent in December, still continues to remain moderate. Rising vegetable and food prices are driving retail and wholesale inflation higher. Amid the Central government facing fiscal pressures and inflation on the rise, analysts note that the Reserve Bank of India has limited room to cut rates next month despite growth slowdown.
Vegetable inflation jumping to an over six-year high and pulses inflation rising to a more than 3-year high were the key reasons driving retail inflation. The overall retail inflation-based on CPI was 2.11 per cent in December 2018 and 5.54 per cent in November 2019.
“The continuance of wholesale inflation in the moderate range despite higher food inflation is mainly due to subdued manufacturing and fuel inflation — both of which were negative in December. Slowdown in the economy has left the manufacturing sector with very little pricing power,” said Sunil Sinha, principal economist at India Ratings and Research. “Retail inflation at 7.35 per cent and wholesale inflation at 2.59 per cent though presents a contrasting picture, the nominal anchor for RBI is retail inflation. With retail inflation now higher than the targeted level, (we) believe irrespective of the fiscal stance taken by the government in Union Budget FY21, the RBI is unlikely to utilise the limited window for a rate cut in its February monetary policy review,” Sinha said.
For manufactured products, the wholesale inflation cooled marginally to (-) 0.25 per cent during the month under review. Fuel and power, as a category, too continued to show deflationary trend at (-) 1.46 per cent, as against (-)7.32 per cent. The rate of price rise in primary articles as a grouping rose to 11.46 per cent from 7.68 per cent a month earlier.
Primary articles, which have a weightage of 22.62 per cent in the wholesale price index, broadly comprise food articles, non-food articles, minerals and crude petroleum and natural gas components.
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