WPI spurts to 5-month high in October

New Delhi: The wholesale price-based inflation spiked to 5-month high of 12.54 per cent in October, mainly due to rise in prices of manufactured products and crude petroleum.

The WPI inflation has remained in double digit for the seventh consecutive month beginning April. Inflation in September this year was at 10.66 per cent, while in October 2020 it was at 1.31 per cent. The October WPI is the highest in five months since May, when it was at 13.11 per cent.

"The high rate of inflation in October 2021 is primarily due to rise in prices of mineral oils, basic metals, food products, crude petroleum & natural gas, chemicals and chemical products, etc., as compared to the corresponding month of the previous year," the Commerce and Industry Ministry said in a statement.

Inflation in manufactured items was higher at 12.04 per cent in October, as against 11.41 per cent in the previous month. In the fuel and power basket, the rate of price rise was 37.18 per cent in October, as against 24.81 per cent in September. Crude petroleum inflation was 80.57 per cent during the month under review, as against 71.86 per cent in September. Inflation in food articles too witnessed some uptick on a month-on-month basis at (-) 1.69 per cent in October, against (-) 4.69 per cent in September. Vegetable prices were lower at (-) 18.49 per cent, while in onions it was (-) 25.01 per cent.

ICRA Chief Economist Aditi Nayar said the core index recorded a month-on-month jump of 1 per cent with a widespread uptick across the sub-groups reflecting the pervasive commodity price pressures. "With demand reviving, we expect producers to start passing through higher input and freight costs, even as the tax cuts on fuels will offer them a breather. Led by the base effect, we expect WPI inflation to moderate in the months ahead, and print at 7.5-8.5 per cent in March 2021," Nayar added.

India Ratings and Research Principal Economist Sunil K Sinha said core and manufacturing inflation surged to a fresh high of 11.8 per cent and 12 per cent respectively in October 2021. This was the fourth successive month in which they have remained in excess of 11 per cent.

"As supply disruption has yet to normalize in many areas and manufacturers are becoming more confident about the demand recovery they are increasingly passing on the higher input costs to their output prices. Since fuel is a major input into transportation cost, higher fuel prices push up the distribution cost further," he said.

Sinha said with Brent crude breaching the USD 82/barrel mark in the international markets, fuel inflation is unlikely to provide any breather going forward. "The recent outbreaks of COVID cases in China and Europe indicates that the challenge of COVID-19 has yet not ended. Therefore, India Ratings & Research opines that wholesale inflation is likely to remain at elevated levels in the near-term," Sinha added.

CRCL CEO and Managing Partner D R E Reddy said the rise in the WPI is a cause of concern as the industries may pass it on to end consumers. "The persistent rise in inflation points to a rise in demand. On the positive side, the rise in demand points to a recovery in growth as lockdown is eased across the country. The month-on-month rise may hasten RBI's decision to unwind the excess liquidity, tighten the policy rates earlier than expected," Reddy added. Data released last week showed, retail inflation-based on Consumer Price Index rose to 4.48 per cent in October, from 4.35 per cent a month ago, as food prices inched up along with high input costs, fuel and commodity prices. The RBI, which mainly takes into account retail inflation, in its monetary policy last month kept interest rates unchanged at record lows and had decided to continue with its accommodative stance for as long as necessary.