WPI inflation at (-)0.73% in December, food prices harden

New Delhi: For the 14th month in a row, wholesale prices fell in December but the rate of decline at 0.73 percent was the slowest in last one year as food prices shot up, indicating return of inflationary pressures ahead of RBI's monetary policy review.

The Wholesale Price Index based inflation, which has remained in the negative zone since November 2014, has inched up in the last four months. It was (-)1.99 percent in November.

In December 2014, however, it was (-)0.50 percent.

Food inflation shot up to 8.17 percent in December as against 5.20 percent in the previous month.

Inflation in pulses and onion was 55.64 percent and 25.98 percent respectively. The rate of price rise in case of vegetables was 20.56 percent during December and for fruits it was 0.76 percent.

Industry body Ficci said continuation of the deflationary trend was an indication of weak demand in the economy. "We hope that the central bank will respond to the situation appropriately and take steps that would aid the process of industrial recovery."

The Reserve Bank may also face pressure to reduce the key lending rate further as industrial production contracted by 3.2 percent in November, its sharpest decline in four years.

Besides IIP, the central bank also looks into retail inflation data while firming up its monetary policy stance.

Retail inflation has been rising for 5 straight months and was 5.61 percent in December. RBI's next bimonthly policy review will be unveiled on February 2.

India Ratings & Research Chief Economist Devendra Pant said a sharp uptick in food inflation and an unabated increase in the price of pulses is a matter of concern.

As per the official data, inflation for October has been revised to (-)3.70 percent from the provisional estimate of (-)3.81 percent.

During December, the rate of price rise in potato was (-)34.99 percent, while in egg, meat and fish it was 5.03 percent.

Inflation rate in fuel and power segment was (-)9.15 percent and for manufactured products it was (-)1.36 percent in December.

Assocham said the continuous decline in WPI numbers for manufactured products could adversely impact the pricing power of manufacturers in India.

"The focus of the government and RBI should now shift to revive GDP expansion and industrial growth, especially the poor performance of capital goods and manufacturing sector as seen in the recent IIP numbers needs to be looked into immediately," Assocham said.

ICRA Senior Economist Aditi Nayar said the month-on-month uptick in wholesale food prices in December may be a pre-cursor to a similar trend at the retail level in the ongoing month.

"With the contraction in November industrial output, largely attributable to a one-off base effect and the hardening of retail and wholesale inflation in December 2015,

we continue to expect the RBI to pause until the fiscal targets for 2016-17 are revealed in the Union Budget," Nayar said.