Wholesale price inflation spikes to a record as food, fuel surge

Primary food inflation hits 13-month high.

Youth Congress members protest against rising prices in New Delhi on December 14, 2021.

India’s wholesale prices inflation peaked to a new high of 14.23% in November from 12.54% in October, led by a surge in primary food inflation that hit a 13-month high and a continued uptick in mineral, fuel and power, as well as oil and gas prices.

Economists termed the record wholesale inflation print, the eighth month in a row that India has seen double-digit inflation, a negative surprise. Expectations that the tax cuts on fuel announced early November by the Centre may provide some relief to producers grappling with high commodity and freight costs were belied.

 

Fuel and power inflation, in fact, surged to a record level of almost 40% in November, rising sharply over two months from the revised level of 29.5% recorded in September. A marked uptick was also visible across most categories beyond fuel.

Manufactured products recorded a marginal reduction month-on-month with inflation dipping to 11.92% from 12.04% in October, but food inflation measured by the wholesale food index more than doubled from 3.06% to 6.7% in November. Inflation in primary articles also virtually doubled to 10.34% from 5.2% in October.

The Wholesale Price Index (WPI) climbed 2.73% on a month-on-month basis, an official statement said, attributing the ‘high rate of inflation’ primarily to the rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products etc.

The record inflation of 14.2% in November 2021 has come as a shock, said ICRA chief economist Aditi Nayar, as most non-core categories displayed an inflation rate that was much steeper than expected. Inflation, measured by the WPI, had risen 2.29% in November 2020.

“The unseasonal surge in vegetable prices, as well as a rise in the inflation for egg, meat and fish, and condiments and spices underpinned the turnaround in the primary food inflation to a 13-month high 4.9% in November 2021 from the disinflation of 1.7% in the previous month,” she noted.

Within food articles, inflation in eggs, meat and fish jumped from 1.98% in October to 9.66% in November, fruits recorded 15.5% inflation compared to 8.2% a month earlier, and wheat prices saw an inflation of 10.14% from 8.14% in October. Vegetable price trends turned around after at least five months of negative inflation, having last recorded -18.5%, to clock an inflation of 3.91% in November.

“A falling base is likely to push up the inflation rate for primary food articles further in the current month, in spite of an anticipated sequential moderation in prices of various food items,” Ms. Nayar warned.

Although the prices of various food items have displayed a seasonal downtrend and those of several commodities have corrected to an extent following the reality check provided by the Omicron variant, the Rupee has depreciated in recent sessions, which would curtail the extent of moderation in the WPI inflation in December, she explained.

ICRA now expects wholesale prices inflation to average 11.5-12% in 2021-22, with the headline and core inflation expected to continue to print in double-digits over the next three months and one month, respectively.