Wholesale inflation eases marginally to 13.56% in December

The wholesale price-based inflation, based on the Wholesale Price Index (WPI), eased to 13.56% in December from a record high of 14.23% in November. In December, the WPI, which measures what producers charge retailers, bucked the trend of 4 consecutive months of rising wholesale prices.

The wholesale inflation has remained in double-digits since the start of the financial year 2021-22. The wholesale inflation prices announced today follow close on the back of a 5-month high of 5.59% in CPI-based retail inflation announced on Wednesday led by rising food prices. The widening gap between WPI and CPI inflation reflects the price pressures on the inputs side, which are expected to pass through to the retail level in the coming months.

On the bright side, the consistent rise in wholesale prices is an indication of a rise in demand and growth recovery as the lockdown curbs are eased across the country. This renewed confidence in the economic climate could give further impetus to producers to pass on the higher input and freight costs to the consumers. Many manufacturers across industry sectors have so far tried to absorb the higher input costs incurred by them but may now just begin to pass on the burden to customers as they struggle to maintain the status quo. This, in turn, will lead to a pass-through effect which will see a corresponding increase in retail inflation prompting RBI to reconsider its stance on keeping interest rates low to support growth in its bi-monthly monetary policy meeting in February 2022.

"The high rate of inflation in December 2021 is primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products, textile and paper, and paper products as compared to the corresponding month of the previous year," the Commerce and Industry Ministry said in its statement.

Petrol and LPG price-based inflation were higher at 72.1% and 53.3% respectively. Inflation in manufactured products, the biggest category in the WPI index, moved down marginally to 10.6% after touching a near all-time high of 11.9% in November.

Wholesale Food Inflation

WPI has a sub-index called Food Index (WFPI), which is a combination of the Food Articles from the Primary Articles basket, and the food products from the Manufactured Products basket. As a sub-index, it broadly constitutes 24.4% of the overall Wholesale Price Index.

The Wholesale Food Price Index rose 9.24% in December compared to 6.7% in November. Wholesale prices of vegetables were higher by 31.6%, fruits by 15.1% while the prices of wheat increased by 11.4% in December.

Reference Reading

What is wholesale inflation?

Wholesale inflation is based on the Wholesale Price Index (WPI) which measures the changes in the price of 697 goods sold and traded in bulk by wholesale businesses to other businesses. Analysts use the numbers to track the supply and demand dynamics in industry, manufacturing, and construction. An upward surge in the WPI print indicates inflationary pressure in the economy and vice versa. The quantum of rise in the WPI month after month is used to measure the level of wholesale inflation in the economy. The wholesale price basket is broadly grouped into Primary articles, Fuel & Power, and Manufactured Goods.

• Primary articles: It constitutes 22.6% of the overall Wholesale Price Index. It is further subdivided into Food Articles, Non-food articles, Minerals, and Crude Petroleum & Natural Gas
• Fuel & Power: It constitutes 13.2% of the overall Wholesale Price Index and tracks price movements in Petrol, Diesel, and LPG
• Manufactured products: This is the biggest component basket and carries a weightage of 64.2% in the overall WPI. It comprises of a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, etc and Manufactured Goods such as Sugar, Tobacco Products, Vegetable and Animal Oils, etc.