WPI inflation cools to 22-month low of 4.95% in December on softening food prices

The wholesale price-based inflation declined to 4.95 per cent in December, the lowest level in 22 months, on the back of easing in the prices of food, crude petroleum, textiles and chemical products, as per the government data released on Monday.

The annual rate of inflation in December 2022 is sharply lower than 5.85 per cent recorded in November. The Wholesale Price Index (WPI) based inflation has declined below 5 per cent for the first time since February 2021. In December 2021, the WPI-based inflation stood at 14.27 per cent.

“Decline in the rate of inflation in December 2022 is primarily contributed by fall in prices of food articles, mineral oils, crude petroleum and natural gas, food products, textiles and chemicals and chemical products,” the Ministry of Commerce and Industry said in a statement.

Vegetables became cheaper by 35.95 per cent year-on-year in December. Prices of onions dropped by 25.97 per cent during the month under review on a year-on-year basis. Overall, food articles became cheaper by 1.25 per cent in December 2022 when compared with December 2021.

The inflation has eased significantly in the past two reporting months. On a month-on-month basis, WPI witnessed a contraction of 1.12 per cent in December when compared with the previous month. The WPI witnessed 0.26 per cent contraction in November when compared with October.

Inflation has eased in both wholesale as well as retail segments. The Consumer Price Index (CPI) based retail inflation, which the RBI tracks for its policy action, declined marginally to 5.72 per cent in December from 5.88 per cent in the previous month, according to data released by the National Statistical Office (NSO) last week.

The RBI has been mandated by the government to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 2026. There is no such target for WPI inflation.

"Decline in WPI inflation to 4.95 per cent and CPI inflation to 5.72 per cent in December shows a steady downtrend in price level. The significance of this downtrend is that it will enable the MPC to pause after one more, say, 25 bp rate hike in February," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

On a month-on-month basis, WPI inflation eased in all major groups. Food index declined 2.29 per cent in December when compared with the previous month. The index of primary articles contracted by 2.98 per cent in December on a month-on-month basis. Fuel & power index witnessed a contraction of 1 per cent while the manufactured products index contracted by 0.28 per cent during the month under review.

On an annual basis, food index-based inflation declined to 0.65 per cent in December from 2.17 per cent in November. The price rise in primary articles eased to 2.38 per cent in December from 5.52 per cent in the previous month. Wholesale price inflation in manufactured goods declined to 3.37 per cent during the month under review from 3.59 per cent in the previous month.

However, WPI-based inflation in fuel and power rose to 18.09 per cent in December from 17.35 per cent in November. Prices of electricity increased by 9.51 per cent on a month-on-month basis in December, while the prices of mineral oils declined by 4.64 per cent.