Wholesale inflation rises to 2.4% in Dec, set to climb further in Jan

The WPI inflation expectedly rose to 2.4% in December 2024 from 1.9% in November 2024, led by the fuel and power and primary non-food articles, which together accounted for as much as 42 bps of the 48 bps increase in the headline print between these months, according to the latest data by the Ministry of Commerce & Industry.

"The annual rate of inflation based on all India Wholesale Price Index (WPI) number is 2.37% (provisional) for December 2024 (over December 2023). Positive rate of inflation in December 2024 is primarily due to increase in prices of food articles, manufacture of food products, other manufacturing, manufacture of textiles and non-food articles etc," the ministry says.

The WPI food inflation remained unchanged at 8.9% in December 2024 as compared to November 2024. Among food items, the inflation in vegetables and edible oils remained elevated, printing above the 25% mark in the month. The core (non-food manufacturing) WPI inflation inched up slightly to a five-month high of 0.7% in December 2024 from 0.5% in November 2024, while remaining below the 1.0%-mark for the fifth consecutive month.

"The prices of major vegetables, such as tomato, onion and potato, have declined quite sharply on a sequential basis in January 2025 so far. However, the relatively lower weight of vegetables in the WPI vis-à-vis the CPI, would limit the benefits on this account to the headline WPI inflation in the month. Moreover, the import duty hikes on most varieties of edible oil that were undertaken in mid-September 2024, are expected to continue to weigh on the year-on-year (YoY) WPI-food inflation print in January 2025," says Rahul Agrawal, Senior Economist, ratings agency ICRA.

In January as well, global factors coupled with the depreciation in the rupee against the US dollar are expected to keep prices elevated. Global commodity prices have inched up in January 2025 so far compared to December 2024, ICRA data shows. The average price of the Indian basket of crude oil, in particular, has surged by 5.8% month-on-month during January 1-13, 2025, amid tighter U.S. sanctions on Russian oil producers and ships. The recent sharp depreciation in the USD/INR pair to above 86.5 from sub-85 in mid-December 2024, is also expected to exert some upward pressure on the landed cost of imports.

In light of these factors, experts at ICRA forecast the headline WPI inflation could rise further to 3.0% in January 2025 (+0.3% in January 2024), with the uptick in crude oil and commodity prices and the depreciation in the USD/INR pair pushing up the print, along with an unfavourable base. "We expect the WPI inflation to average at an eight-quarter high of ~3.0-3.3% in Q4 FY2025 vs. 2.3% in Q3 FY2025, with the cooling in WPI-food inflation only partly offsetting the uptick in the inflation in the non-food segments in the quarter. A continued depreciation in the USD/INR pair would pose upside risks to our estimates."

For the fiscal year 2024-25, the wholesale inflation is expected to average 2.5% and 3-3.3% in FY2026.

The government also released retail inflation data on Monday, recording CPI inflation at a four-month low of 5.22% in December 2024 as compared to 5.48% in November 2024. The corresponding inflation rates for rural and urban areas stood at 5.76% and 4.58%, respectively, down from 5.95% and 4.89%, during the same period last year. The government says during December 2024, a significant decline in inflation was observed in items like vegetables, pulses & products, sugar and confectionary, personal care & effects, and cereals and products, etc. The food inflation for December 2024 stood at 8.39% as compared to 9.04% in the previous month. The corresponding food inflation for rural and urban was 8.65% and 7.90%, respectively.