InvestorQ : What does the sharp fall in WPI inflation for December really indicate?
vaishnavi mhatre made post

What does the sharp fall in WPI inflation for December really indicate?

vidhya Laxmi answered.
12 months ago

The Wholesale Price Index or WPI inflation was published by the MOSPI on 14 January. WPI inflation represents the producer inflation and that is to be understood distinctly from CPI inflation which is inflation at a consumer level. WPI inflation is a lot more illustrative in terms of the prices that producers are realizing.

Like in the case of retail CPI inflation, even WPI inflation softened to a 4-month low of 1.22% in Dec-20. It was at a level of 1.55% in Nov-20. Like in the case of CPI, it was food output that actually drove the fall in WPI inflation. There was one more similarity and that was the sharp rise in core inflation in the case of WPI too.

Like in the case of CPI inflation, the core inflation which is the residual inflation that excludes food and fuel items, actually rose to a 2-year high of 4.2%. What has actually driven core inflation in this case? The core inflation was driven higher by metals and commodities and that is evident in the spike in these metal prices and metal stocks.

One of the main reasons for the sharp fall in WPI-Food inflation was vegetables reverting to negative price growth. Oil inflation was lower on YOY basis, but that can be quite misleading. The real picture is on a sequential basis wherein the WPI inflation was up more than 320 bps on the back of the 55% spike in crude oil prices. Manufacturing inflation shot up to 4.2% in Dec-20, so overall industries are realizing a good price.