Wholesale inflation surges to 9-month high in Dec 2023

The wholesale price index (WPI)-based inflation surged to a nine-month high of 0.73% in December 2023, up from 0.26% in November 2023, the government data shows.

The wholesale inflation had returned to positive territory in November 2023 after several months of negative wholesale inflation. In October 2023, the WPI was recorded at -26%. It plunged into the negative zone in April 2023 at -0.92 from 1.34% in March 2023.

However, in FY 2023-24 so far, the average wholesale inflation remains at -1.1%.

As per the commerce and industry ministry, the wholesale inflation rate was recorded as “positive” in December 2023 due to an increase in the prices of food articles, machinery & equipment, other manufacturing, other transport equipment and computers, and electronics & optical products.

Among all commodities, the primary articles saw wholesale inflation surging to 5.78% in December from 4.76% in November 2023. The fuel & power and manufactured products categories saw negative inflation of -2.41% and -0.71%, respectively. The food index saw inflation rising to 5.39% in the month from 4.69% a month earlier.

In the primary articles group, the index declined 2.14% in December 2023. Prices of non-food articles (-0.18%), minerals (-1.91%), food articles (-2.30%) and crude petroleum & natural gas (-4.28%) declined in December 2023 compared to November 2023.

In the fuel & power category, the prices of electricity (1.34%) increased in December 2023 compared to November 2023. The prices of mineral oils (-1.54%) declined in December 2023 compared to November 2023.

The index for manufactured products decreased by 0.21% in December 2023 from November 2023.

The retail inflation data released on Friday last week, meanwhile, showed the consumer price index (CPI)-based inflation rising to a 4-month high of 5.69% on an increase in food price inflation. Inflation in all the other components increased at a lower rate when compared to the previous month. The pick-up in inflation was driven by an unfavourable base effect of around 10 bps.

Analysts, however, seem positive the retail inflation will come down to the central bank's target band. "CPI and core CPI remain in equilibrium long run relationship with CPI adjusting towards the Core CPI, which has continued its downtrend from the last 12 months to reach 3.76% in Dec’23. The softening is visible across sub-groups such as clothing and footwear, household goods and services, recreation and amusement, pan tobacco and intoxicants, education and personal care and effects. The divergence of headline CPI from Core CPI, in place of convergence, is due to high food CPI in general, and fruits, vegetables, spices, and cereals CPI in particular. These prices are not expected to come down much but are expected to hold at nearly same level in Q4FY24," writes SBI Research's group chief economic adviser Soumya Kanti Ghosh.

He adds that once the aforesaid four item-wise CPI comes under control, headline inflation will drastically reduce to come near the mid-point of the RBI’s inflation target of 4%. "We expect CPI inflation to come down to 5.0% by Mar’23."

The IIP growth data, released Friday last week, also showed a deceleration to 2.4% YoY in November 2023 from 11.6% in October 2023. All three sectors, mining, manufacturing and electricity, registered lower growth. Capital goods (-1.1% yoy), consumer durables (-5.4 yoy) and consumer non-durables (-3.6% yoy) clocked negative growth in Nov’23. On the other hand, primary goods registered the maximum growth of 8.4% YoY during the month.