“The divergence in the sequential trend in CPI and WPI inflation in December was driven by food inflation and the impact of the higher housing inflation, limited to the CPI.
The dip in inflation for primary food articles in the WPI for December might signal some correction in the CPI inflation for food items in the ongoing month,” says Aditi Nayar, principal economist, Icra.
The decline in WPI was driven by primary articles (those not processed), which dropped to 3.86 per cent in December from 5.28 per cent in November. The category has a weight of 22.62 per cent in the index. Within this category, food inflation eased to 4.72 per cent in December, down from 6.06 per cent in November, led by cereals, vegetables, eggs, meat, and fish.
While vegetable prices rose 56.46 per cent in December, those of pulses continued to contract. Wholesale pulse prices contracted by 34.6 per cent in December, a sixth straight month of fall.
Fuel and power inflation rose to 9.16 per cent in December, up from 8.82 per cent in November, suggesting that industry is likely to see a compression in margins.
On the other hand, wholesale inflation in manufactured products remained at the same level as before (2.6 per cent). The category has a weight of 64.23 per cent in the index. However, in this category, wholesale prices of basic metals rose by 10.03 per cent, up from 9.9 per cent in November. Those of semi-finished steel went up 6.19 per cent, from 2.89 per cent in November.
“Despite the sharp rise in crude oil prices in the current month, we expect WPI inflation in a range of 3.2 to 3.6 per cent in the March quarter, benefiting from the base effect. Therefore, the wedge between CPI and the WPI inflation is expected to remain wide in the ongoing quarter,” said Nayar
“The lower WPI reading reflects sharp seasonal correction in food prices. Further, the rupee’s appreciation may have helped cap the upside risks emanating from the rise in global commodity prices,” said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank. Adding: “We expect retail inflation to head towards 5.5-6 per cent by June 2018, before moderating towards 4.4 per cent by the end of FY19.”