WPI inflation at 8-month peak in October
Highest level of WPI inflation since February when it was 2.26%
New Delhi: The wholesale price-based inflation rose to an eight-month high of 1.48 per cent in October, as manufactured products turned costlier, with experts saying that the RBI will keep interest rates on hold in its policy review next month.
The WPI inflation was at 1.32 per cent in September and zero per cent in October last year. This is the highest level of wholesale price index-based (WPI) inflation since February, when it was at 2.26 per cent. While food article prices softened in October, manufactured items witnessed hardening of prices, according to the data released by the Commerce and Industry Ministry.
Food inflation in October stood at 6.37 per cent, as against 8.17 per cent in the previous month. The rate of price rise in vegetables and potato remained high at 25.23 per cent and 107.70 per cent, respectively, during the month. Inflation in manufactured products category stood at 2.12 per cent in October, as against 1.61 per cent in September.
Fuel and power basket witnessed softening to (-)10.95 per cent in October.
The retail inflation, based on consumer price index, was at a six-year high of 7.61 per cent in October, data released last week showed. ICRA Principal Economist Aditi Nayar said core inflation spiked to 1.7 per cent in October 2020 from 1 per cent in September, and the core index has been hardening since August.
"In our view, the core inflation will continue to record a steady uptick in month-on-month terms over the next few months, with the strengthening of the economic recovery, while food prices will remain dominated by the trend displayed by vegetables. The MPC (Monetary Policy Committee) is likely to stay on hold in at least December 2020, if not in February 2021 as well," Nayar said.
India Ratings and Research Chief Economist D K Pant said the increase in core inflation suggests improvement in demand conditions after lifting of COVID-19 lockdown. "However, it will be too early to term this as a general recovery, a large part of this is due to festival related demand," Pant said. "Rising retail food inflation and declined wholesale food inflation is a nightmare for policy makers.
India Ratings expects demand...to improve further, however, bigger question is whether increased demand will be sustained after festive season," Pant added. The RBI is scheduled to review policy interest rate on December 2-4. The Reserve Bank in a report on the state of economy last week had also flagged unrelenting pressure of inflation as a downside risk confronting the prospects of economic recovery.
"The foremost is the unrelenting pressure of inflation, with no signs of waning in spite of supply management measures...There is a grave risk of generalisation of price pressures, unanchoring of inflation expectations feeding into a loss of credibility in policy interventions and the eventual corrosion of the nascent growth impulses that are making their appearance," RBI had said.