The wholesale price-based inflation rose sharply to 2.03% in January on costlier non-food manufactured items and experts are projecting further uptick in the rate of price rise in the next few months. The WPI inflation was 1.22% in December, 2020 and 3.52% in January last year.
While food articles saw softening in inflation, the sharp rise in the WPI inflation in January was led by manufactured non-food products, fuel and power, and crude petroleum and natural gas, data released by the Commerce and Industry ministry showed on Monday.
Food inflation in January stood at -2.8%, against -1.11% in the previous month. In vegetables and potatoes, it was -20.82% and -22.04% respectively. Core inflation rose to a 27-month high of 5.1% in January 2021.
In non-food articles, inflation was higher at 4.16%, while in the fuel and power basket it was -4.78%, during the month under review.
ICRA Principal Economist Aditi Nayar said a deeper disinflation in primary food articles helped to cushion the impact of the sharp rise in core inflation. Rising demand and strengthening pricing power will make core inflation rise further to as much as 7-7.5% during April-June quarter, according to ICRA.
"... the headline WPI inflation is set to record large upticks over the course of the next few months. We now expect the WPI inflation to average 5-5.5% in FY2022, unless the available vaccines turn out to be ineffective against new COVID-19 variants, causing commodity prices, consumer confidence and business sentiment to plunge," Nayar added.
The Reserve Bank of India (RBI) in its monetary policy decision on February 5, kept interest rates unchanged for the fourth consecutive meeting and said that the outlook for core inflation is influenced by the escalation in cost-push pressures seen in recent months.
Petroleum product prices have reached historic highs as international crude prices surged in recent months and the high indirect taxes remain, both in the Union government and states. These, along with the sharp increase in industrial raw material prices have resulted in a broad-based increase in prices of services and manufacturing products in recent months.
"Going forward, concerted policy action by both Union government and states, is critical to ensure that the ongoing cost build-up does not escalate further," the RBI had said.
Data released last week showed retail inflation, based on the consumer price index, was at 4.06% in January.
"We expect the CPI inflation to have bottomed out in January 2021, with large upticks expected in the next two prints. This, combined with the anticipated hardening in the core-WPI inflation, reaffirms our view that there is no room for further rate cuts in this cycle," Nayar added.