WPI inflation spikes to 12.54% in October

Inflation in wholesale prices hit a five-month high of 12.54% in October, rising significantly from 10.66% in September, thanks to a broad-based surge in prices of most commodities led by fuel and power, vegetables and oils as well as chemicals.

Economists reckoned that core wholesale price inflation hit a fresh all-time high of 11.9% in October, the seventh month in a row that the headline wholesale inflation print recorded a double-digit spike. October 2020 recorded an inflation rate of 1.31% in wholesale prices.

Wholesale fuel and power inflation shot up to 37.2% in October, from about 25% the previous month, while manufactured products’ inflation hardened to over 12%.

“Partly reflecting the issues related to coal availability, the electricity sub-index spiked by 19% sequentially, pushing up the overall fuel inflation to a sharp 37%. Moreover, while crude oil prices firmed up, the index for natural gas surged by 31% month-on-month,” said ICRA chief economist Aditi Nayar.

The Wholesale Food Price Index rose 3.06% compared to 1.14% in September. Primary food article prices surged to their highest level since August 2017, on a sequential basis, estimated Morgan Stanley economists Upasana Chachra and Bani Gambhir in a note on Monday. They stated that the wholesale price index (WPI) surge was higher than expected.

Ms. Nayar observed that on a month-on-month basis, food prices surged 5%, thanks to vegetables and fruits, which continued to see an uptick in prices through early November. This trend, most acutely seen in potatoes, tomatoes and onions, would weigh against a seasonal moderation in the food index in November, she noted.

The Office of the Economic Advisor in the Department for Promotion of Industry and Internal Trade (DPIIT), which releases the WPI, stated, “The high rate of inflation in October 2021 is primarily due to the rise in prices of mineral oils, basic metals, food products, crude petroleum and natural gas, chemicals and chemical products, etc. as compared to the corresponding month of the previous year”.

Tax cuts on fuel

Ms. Nayar stressed that the tax cuts on fuel announced earlier this month may provide some relief to producers grappling with high commodity and freight costs reflected in persistently high manufactured products’ inflation. She expected the wholesale inflation to moderate in the coming months.

The surge in wholesale prices may lead to a pass-through effect at the retail level this month. Retail inflation in October recorded a less pronounced uptick in October, moving to 4.48% from 4.35% in September. However, urban India experienced an inflation of over 5%, and oils and transport and communication clocked a sharp rise across the country, while vegetable costs jumped from the preceding month’s level.