As fuel prices go up, WPI inflation at 5.25% in January

The wholesale price index (WPI) based inflation, reflecting the annual rate of price rise, in December stood at 3.39 per cent. In Jan 2016, the print was (-)1.07 per cent. The last comparable high level of WPI was witnessed in July 2014 at 5.41 per cent. 

As per Commerce Ministry data, inflation in the ‘fuel and power’ basket more than doubled to 18.14 per cent in January, up from 8.65 per cent in the previous month. Inflation in diesel and petrol shot up to 31.10 per cent and 15.66 per cent during the month. 

Oil prices have been on rise since OPEC in early December decided to cut output for the first time in eight years. Spot LNG prices have also risen from USD 5.25 to about USD 9 per MMBTU on winter heating requirements. Liquefied natural gas is used for power generation. As per the data, food inflation basket witnessed contraction for the second month in a row with inflation at (-)0.56 per cent in January as against (-)0.70 per cent in December. 

WPI inflation in vegetables, at (-)32.32 per cent in Jan, saw deflationary pressure for the fifth consecutive month. This was helped by a substantial price fall in onions, which stood at (-)28.86 per cent. 

Pulse inflation moderated to 6.21 per cent, from 18.12 per cent in December. Potato prices recorded sharp fall at (-)0.20 per cent, from 26.42 per cent in the previous month. Rate of price increase in egg, meat and fish was 3.59 per cent during January. 

Inflation in manufactured items saw some uptick at 3.99 per cent compared with 3.67 per cent in December. While the rate of price rise in sugar was 22.83 per cent, for fibres, it was 15.18 per cent, and 25.44 per cent for minerals. The WPI inflation for November has been revised upwards to 3.38 per cent against the provisional estimate of 3.15 per cent. 

The rise in wholesale inflation is in contrast to the fall in retail inflation, which hit a five-year low of 3.17 per cent in January. In its policy last week, RBI retained the benchmark interest rate and changed the stance from ‘accommodative’ to ‘neutral’, indicating that there will not be any rate cut in the near term. 

It may, however, have to review its policy stance in the wake of retail inflation touching multi-year low in January. The RBI projected inflation will remain below 5 per cent in the January-March quarter of this fiscal but hardening of global crude oil prices and volatility in exchange rates could put upside pressure in the next financial year.