India's wholesale price index (WPI) based inflation surged to 2.37% in December 2024 from 1.89% in November, according to data released by the government. In December last year, WPI-based inflation was at 0.86%.
The spike in the last month is attributed primarily to the increase in prices of food articles, manufacture of food products, other manufacturing, manufacture of textiles and non-food articles.
"An uptick in core inflation along with a jump in non-food articles (others) inflation led to the increase in wholesale inflation in December 2024," said Paras Jasrai, senior economic analyst at India Ratings and Research.
The prices of non-food articles jumped to 2.5% year-on-year in December 2024 after a near two-year of decline in prices.
Decoding WPI's Impact
WPI defines goods sold at the wholesale level or in simpler words goods that are traded between businesses instead of directly to the consumers. It is categorised under three parts - primary articles, fuel & power and manufactured products.
WPI is a macroeconomic indicator for the economy as it measures the average change in the price of goods at the wholesale level, reflecting the price fluctuations of a basket of goods before they reach the retail market.
The primary objective of this index is to inspect movement in prices of goods that reflect supply and demand in industry, construction and manufacturing. However, there are certain limitations in using WPI as a measure for inflation, as it does not consider the price of services, and it does not reflect the consumer price situation in the country.
CPI vs WPI
Consumer price index or CPI defines the rise or fall in the prices of goods and services that are used by consumers or households over a period of time. It is a widely used measure for determining inflation in an economy which also influences policy making decisions.
Citing high CPI inflation, the Reserve Bank of India (RBI) held repo rate at 6.5% for the eleventh consecutive time in its latest Monetary Policy Committee meeting in December last year, despite a slowdown in the economy.
Will it Affect Consumers?
According to Yuvika Singhal, an economist at QuantEco Research, the WPI average is fairly benign in the current financial year to date somewhere around 2.1-2.2%. However, Singhal stated that the average WPI for FY26 will be higher, currently projecting it at around 3.5%, with no major economic shocks.
"Given the composition of WPI, which captures more of manufactured products; imports; and intermediate goods that are used in the final production of goods, it would be interesting to see how the impact of the rupee depreciation translates into WPI, as it will be hit much more strongly compared to CPI," Singhal said.
"It's only when WPI increases that producers will pass on the cost to consumers and the impact on CPI will be more lagged," she added.
Experts also pointed out that the next few months will be crucial in determining how inflation evolves for producers, especially with the sharp rupee depreciation.
"A seasonal correction in prices of key vegetables would keep food inflation on a moderating trend. However, edible oil prices would keep a lid on the expected decline in food inflation. The overall global economic environment remains uncertain, keeping commodity prices volatile," said Jasrai.
Furthermore, global factors, like possible tariff changes and trade wars with Donald Trump returning to the White House, could also increase India's costs, particularly for imported intermediate goods.
As these pressures build, Jaisrai also believes that the RBI's monetary authority would want to wait for one more policy before undertaking any change on the rates front as the conviction of fiscal arithmetic would also be weighing closely on it.
