Wholesale Price Inflation Climbs to 2.37% in December, Market Focus Shifts to RBI’s February Rate Decision
NEW DELHI, Jan 14: Wholesale price inflation surged to 2.37 percent in December 2024, driven by significant increases in the prices of non-food articles, manufactured goods, and fuel and power, despite a slight easing in food prices, according to government data released on Tuesday. This marked a rise from 1.89 percent in November 2024 and 0.86 percent in December 2023. In October, inflation had been recorded at 2.75 percent.
While food inflation softened slightly to 8.47 percent in December from 8.63 percent in November, certain food items remained high. Vegetables saw steep price hikes, with inflation at 28.65 percent, while potatoes surged by 93.20 percent and onions by 16.81 percent. In contrast, the inflation for cereals, pulses, and wheat showed a modest decline.
The non-food sector, especially oilseeds, saw an uptick in inflation, rising by 2.46 percent in December, compared to a deflation of 0.98 percent the previous month. The fuel and power category experienced a reduction in deflation to -3.79 percent, a less severe decline than November’s -5.83 percent. The inflation in manufactured goods was also slightly higher at 2.14 percent in December, up from 2 percent the previous month.
ICRA Senior Economist Rahul Agrawal attributed the rise in WPI to spikes in fuel and power prices, as well as primary non-food articles, which together contributed approximately 42 basis points to the 48 basis point increase in the index from November to December. Agrawal also pointed out that global commodity prices have shown an uptick in January 2025, particularly crude oil, which rose by 5.8 percent from January 1 to 13, driven by tighter U.S. sanctions on Russian oil producers. Additionally, the sharp depreciation of the rupee against the U.S. dollar, surpassing 86.5 from under 85 in mid-December 2024, is expected to put upward pressure on import costs.
Looking ahead, ICRA forecasts a further rise in WPI inflation, estimating it will climb to 3 percent in January 2025 due to rising global commodity prices, the weakening of the rupee, and an unfavorable base effect from the previous year. They predict an average WPI inflation of 2.5 percent for the current fiscal year, with a range of 3 to 3.3 percent in FY26.
Barclays also noted the increase in WPI inflation, which rose from 1.9 percent in November to 2.37 percent in December, largely due to a low base effect. The research highlighted that electricity WPI saw a sharp rise, while food prices saw some relief.
Retail inflation, as measured by the consumer price index (CPI), eased to a four-month low of 5.22 percent in December, primarily due to lower food prices.
As the Reserve Bank of India (RBI) prepares to announce its monetary policy decision on February 7, all eyes are on its response to the inflationary trends. Given the easing of liquidity measures in December, where the RBI reduced the cash reserve ratio by 50 basis points, market expectations are building around a potential interest rate cut in 2025.
