Data released by the commerce and industry ministry on Monday showed inflation, as measured by the Wholesale Price Index (WPI), rose an annual 4.95% in December, lower than the 5.9% in November. Decline in the rate of inflation in December 2022 is primarily accounted for by the fall in prices of food articles, mineral oils, crude petroleum & natural gas, textiles and chemicals & chemical products. WPI-based inflation has slipped below the 5% mark for the first time in 22 months after staying in double digits for 18 consecutive months. It started easing in October.
The moderation in WPI followed the easing in retail inflation in December. Retail inflation moderated to a 12-month low of 5.7% in December on the back of softening food prices. The WPI data showed vegetable prices fell nearly 36% during the month while crude petroleum prices rose 21.9%, slower than the 51.4% recorded in December 2021. Cereal prices remained robust, rising 14%, while wheat prices rose 21%.
Inflation had emerged as a major policy challenge with both CPI and WPI inflation surging last year, prompting the RBI to increase interest rates sharply. Economists said the central bank may adopt a wait-and-watch approach and most likely pause its rate increasing cycle after February.
“While we acknowledge that inflationary risks are receding, the RBI is unlikely to find much comfort in the details of inflation, with core still elevated above 6% and the decline in price pressures coming mainly from volatile components, such as vegetables,” Barclays said in a note.
“Still, with CPI inflation returning within the target band for two months, we expect headline inflation to fall further in the coming months, which should allow the RBI to pause beyond February, and reassess the need for further tightening,” the note added.