Wholesale price index returns to inflation after seven months

Wholesale inflation turned positive in November after witnessing seven months of deflation, as a pick-up in wholesale food inflation and fading base effect turned the cycle.

The Wholesale price index registered a 0.26% increase in November, compared with 0.5% deflation in October, according to data released Thursday.

Experts indicate that while wholesale inflation will likely remain positive, it will stay below 2% for the remainder of the year as energy and manufacturing costs remain contained.


“Overall, the wholesale price inflation trajectory shows energy input and manufacturing costs remain broadly under control,” said Rahul Bajoria, MD and head of EM Asia (ex-China) economics, Barclays.

Global commodity prices are also likely to limit any upside to inflation trajectory, even as food prices pose threat.

“Upside risks could emanate from food prices pressures. However, expected deflationary trend in the manufacturing segment aided by lower metals prices and a sharp correction in global crude oil prices would limit any significant upward movement in the WPI index,” said Rajani Sinha, chief economist, CareEdge.

The rising food prices are likely to feed into higher consumer inflation in December as well.

“The magnitude of increase in wholesale food prices was much more than in retail food prices (which rose 0.9% m/m), indicating wholesalers did not pass through the entire price rise to consumers, which may be reflected in elevated retail food prices in December, unless supply (particularly of vegetables) increases,” Bajoria said.

Food concerns
Data released earlier this week showed food pushing up consumer inflation to 5.6% in November from 4.9% in October.

Food inflation rose to 8.7% in November, as the categories exhibiting double-digit inflation widened.

Wholesale food inflation registered a 4.7% rise in November, as onions recorded a 101% inflation and pulses inflation rose further to 21.6% from 19.4% in the previous month.

Vegetable inflation also ran in double digits on the back of rising tomato prices.

Manufacturing, which accounts for nearly two-thirds of the index, witnessed 0.64% deflation, narrowing from 1.13% in October.

Fuel and power deflation became much more pronounced at 4.61% in November compared with 2.47% in the previous month.

Sequentially, however, prices firmed up across categories with the overall index recording a 0.53% rise.

Manufactured products were largely flat from October.

“Prices were pushed up by higher food manufacturing prices, as non-food manufacturing prices (including manufacture of base metals, textiles, chemicals, and machinery continued to decline). Core WPI (non-food manufacturing) was thus largely flat m/m and fell 0.44% y/y,” Bajoria said.