Reserve Bank of India tracks consumer inflation for formulating its monetary policy
Wholesale Inflation in December 2020: The rate of inflation, based on the monthly wholesale price index (WPI), stood at 1.22 per cent for the month of December 2020, as compared to 2.76 per cent in the corresponding month of 2019, government data showed on Thursday, January 14. The wholesale inflation during the month was registered amid a decline in food prices. Along with this, retail inflation also declined sharply to 4.59 per cent in December, tracking lower food prices. The release of official data on wholesale inflation – or the rate of increase in wholesale prices comes at a time when the economy is staring at a slow medium-term recovery from the COVID-19 crisis amid hopes of coronavirus vaccinations to reinvigorate the economy.
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The rate of inflation based on the WPI food index decreased from 4.27 per cent in November 2020 to 0.92 per cent in December 2020, according to the data released by the Department for Promotion of Industry and Internal Trade. The retail inflation based on the consumer price index (CPI) was 6.93 per cent in November 2020.
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The index for the primary articles group declined by 3.11 per cent to 146.5 in December from 151.2 in the month of November 2020. The prices of crude petroleum and natural gas (5.47 per cent), minerals (5.36 per cent), as well as non-food articles (0.36 per cent), increased in December as compared to November 2020.
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The prices of food articles, at -4.85 per cent declined in December 2020 as compared to November 2020, according to government data. The rate of inflation in food index in December was 0.92 per cent, while the index was 154.4.
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”Inflation for manufacturing products that contribute around 65 per cent to total WPI has risen to 4.24 per cent in December 2020, which is seventh month of successive rise. The rising global commodity prices would have also contributed to this rise as even on the month-on-month basis the manufacturing inflation has risen by 1.4 per cent,” said Prof. Krupesh Thakkar, HoD – Financial Markets, ITM B-School.
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The moderation in WPI inflation was aided by declines in food prices; manufacturing and fuel prices rose sequentially. Food prices declined across the board, while the sharpest reductions were in vegetable prices. The softness in perishable food commodities is similar to the trend in retail prices released earlier this week, according to a research report by Barclays.
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”Though inflation in pulses has softened somewhat in December 2020, they are still either in high single or double-digit. The high inflation witnessed in the vegetable category over the past few months abruptly turned into deflation in the month of December 2020 due to the arrival of winter vegetables and base effect”, said Dr. Sunil Kumar Sinha, Principal Economist, India Ratings and Research.
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The wholesale price index is used to gauge the average change in the price of sale of goods or services in bulk by the wholesaler and the consumer price index measures the change in the price in the sale of goods or services in retail or the price of goods or services sold directly to consumers.
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”The fall in WPI is a good sign however what needs to come down is retail inflation. The recent upward move in crude prices can be a potential dampener,” said Mr. Sanjay Kumar, CEO, and MD, Elior India.
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According to Barclays, durable food commodities such as cereals and pulses will see a mild sequential decline in prices. However, the price of cooking oil, other proteins and non-alcoholic beverages are likely to move up slightly. Food inflation may decline sharply, to 4.9 per cent year-on-year in December, from 10.2 per cent in November.
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(Also Read:Industrial Production Contracts 1.9% In November 2020 ) Meanwhile, the industrial production in the country contracted by 1.9 per cent in November 2020, after registering a growth in October, government data showed on January 12. According to the Index of Industrial Production data, the manufacturing sector output declined by 1.7 per cent in November, and the mining output also contracted 7.3 per cent. The power generation grew by 3.5 per cent.
