With sharp rise in food prices the wholesale inflation fell by (-) 0.73 per cent in December, indicating return of inflationary pressures ahead of the monetary policy review of the central bank. The Wholesale Price Index (WPI) based inflation, dropping for the 14th straight month in a row, has remained in the negative zone since November 2014. Food inflation shot up to 8.17 per cent in December as against 5.20 per cent in the previous month.
The WPI has just inched up in the last four months and was (-) 1.99 per cent in November, while in December 2014, it was (-) 0.50 per cent. Experts, however, feel that the inflationary pressure has returned due to rise in the price of pulses and other food items.
"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 per cent from the provisional estimate of (-) 3.81 per cent. During December, the rate of price rise in potato was (-) 34.99 per cent, while in egg, meat and fish it was 5.03 per cent," said India Ratings & Research Chief Economist Devendra Pant.
Inflation in pulses and onion was 55.64 per cent and 25.98 per cent respectively. The rate of price rise in case of vegetables was 20.56 per cent during December and for fruits it was 0.76 per cent. 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," it said.
Reserve Bank of India (RBI) may also face pressure to reduce the key lending rate further as industrial production contracted by 3.2 per cent 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, however, has been rising for 5 straight months and was 5.61 per cent in December. RBI's next bimonthly policy review will be unveiled on February 2.
Inflation rate in fuel and power segment was (-) 9.15 per cent and for manufactured products it was (-) 1.36 per cent in December.
However, ICRA Senior Economist Aditi Nayar said, "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."