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India’s WPI eases in December, still very high with a ninth consecutive month of double-digit growth

Petrochemical industry | 14 Jan 2022 17:50 IST | Polymerupdate.com

India’s wholesale price index (WPI) reported a modest decline in December due to a fall in prices of manufactured products, fuel, and power. But a sharp acceleration in prices of food products nullified most of the decline in prices of manufactured products, fuel, and power, data released by the Ministry of Commerce & Industry showed on Friday.

The ministry data showed India’s WPI at 13.56 percent in December compared to 14.23 percent growth reported during November and 13.83 percent (revised upwards from 12.54 percent) in October. The WPI for December 2020 was reported at 1.95 percent.

While the growth in the wholesale prices of manufactured products declined to 10.6 percent for December from 11.9 percent in November that of fuel and power eased to 32.3 percent in December from 39.8 percent in November. Coal prices remained unchanged at 3.1 percent. Mineral oil inflation decelerated significantly at 62.6 percent in December versus 79.9 percent in November.

“Although the WPI inflation fell marginally in December, yet the rate is still very high and not a major consolation. The modest decline in WPI can be attributed to the decrease in the prices of manufactured products, fuel, and power. By contrast, food inflation accelerated led by vegetables. Going forward, WPI is likely to ease supported by a favourable base through absolute prices may not come down significantly. We expect WPI to average around 11.5-12 percent in the financial year 2022,” said Dipanwita Mazumdar, Economist, Bank of Baroda.

Partly reflecting the impact of the spread of Omicron on global commodity prices, the year-on-year (yoy) inflation for minerals, and crude oil and natural gas decelerated appreciably in December 2021, relative to the previous month.

Meanwhile, with a modest month-on-month (mom) rise of 0.3 percent, the core-WPI inflation displayed a welcome easing to a six-month low of 11 percent in December 2021. Even as global commodity prices corrected on account of the impact of Omicron, domestic producers undertook price increases in various sectors to protect margins against the cumulative impact of the rise in input costs.

The prices of various food items have displayed a seasonal downtrend, and the rupee has appreciated in recent weeks, the global prices of several commodities have retraced an upward trajectory as the concerns around the impact of Omicron on global demand have abated.

“Nevertheless, a base effect will help moderate the WPI inflation as Q4 FY2022 progresses. However, the WPI inflation may only narrowly fall back into single digits in March 2022. Notwithstanding the continued double-digit WPI inflation in December 2021, we expect the MPC to pause revision in interest rates in February 2022,” said Aditi Nayar, Chief Economist, Icra Ltd.

Nayar added that the duration of the current wave and the severity of restrictions will determine whether policy normalization (change in stance to neutral along with a hike in reverse repo rate) can commence in April 2022, or be delayed further to June 2022. “Once normalization commences, we subsequently expect two repo rate hikes of 25 bps each, followed by a pause to reassess the durability of growth,” Nayar quipped.

Despite a slight moderation in WPI print in December, the divergence between retail and wholesale inflation remains significant. The ability of producers to pass on these prices to consumers will depend on the evolving demand conditions amid virus uncertainties. This could translate into elevated retail inflation in the coming months.

“Although wholesale inflation witnessed slight moderation in December, the elevated food and fuel prices continue to be a matter of concern as they have a direct impact on purchasing power. The inconsistency between CPI and WPI inflation along with the persistent gap between the two could hamper the price stability in the near term. The risk of producers’ price pass-through could feed into the already elevated retail inflation,” said Kavita Chacko, Senior Economist, CareEdge.

Chacko expects wholesale inflation to remain elevated amid fresh virus concerns. “As the base effect drops off in following months, WPI based inflation could follow a downward trajectory ranging between 10-13 percent in the next three months,” she added.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
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