According to the industry ministry data, inflation based on the wholesale price index (WPI) decelerated at a faster-than-anticipated pace to hit a 22-month low of 4.95% in December. The base effect remained favourable and a further moderation in price pressure in core and food items, especially fruit and vegetable, offset a rise in fuel and power inflation.
Easing inflation — retail inflation hit a 12-month low of 5.72% in December — offers some much-needed respite to policymakers as they draw up the Budget for FY24, seeking to spur growth without stoking fresh price pressure. It also eases pressure on the Reserve Bank of India (RBI) to go for another round of aggressive rate hike, although some analysts still reckon the monetary policy committee (MPC) will likely raise the repo rate by up to 25 basis points in February to 6.5% before taking a pause. This is the last set of inflation numbers before the announcement of the FY24 Budget and the monetary policy review in February.
WPI inflation has now moderated in each month since hitting an over 30-year high of 16.63% in May. Retail inflation, too, has dropped for a third straight month in December and remained within the tolerance limit of 6% for two months in a row. Going forward, an expected further moderation in global commodity prices due to a demand slowdown in the wake of rate hikes by key central banks will likely encourage both the fiscal and monetary authorities in India to step up focus on the fragile growth in the coming months. Favourable base effect, too, will add to their comfort. The latest data show the WPI inflation has now dropped below retail inflation in December for a second straight month since February 2021. The WPI-CPI inflation gap also widened to 75 basis points in December, against 3 basis points in the previous month. Lower WPI inflation usually augurs well for corporate earnings and operating margins.
WPI food inflation eased to 0.65% in December from 2.17% in the previous month, having witnessed a steady decline from 10.06% in August. The broader primary articles inflation hit a 23-month low of 2.4% in December, while the manufacturing inflation dropped to a 25-month low of 3.4%. However, fuel & power inflation inched up to 18.1% in December from a 20-month low of 17.4% in November, mainly as electricity inflation shot up to 16.6%from a 15-month low of 9.5%.
(With added input from PTI)