NOV-24 WPI INFLATION RISES TO 2.37% DESPITE HIGHER BASE
The wholesale price index (WPI) inflation for December 2024 eased bounced back from 1.89% to 2.37%. Interestingly, this comes in a month when the CPI inflation had eased. The pressure on WPI inflation came essentially from the oil basket.
Month | WPI Inflation (%) | CPI Inflation (%) |
Dec-23 | 0.86% | 5.69% |
Jan-24 | 0.33% | 5.10% |
Feb-24 | 0.20% | 5.09% |
Mar-24 | 0.26% | 4.85% |
Apr-24 | 1.19% | 4.83% |
May-24 | 2.74% | 4.80% |
Jun-24 | 3.43% | 5.08% |
Jul-24 | 2.10% | 3.60% |
Aug-24 | 1.25% | 3.65% |
Sep-24 | 1.91% | 5.49% |
Oct-24 | 2.75% | 6.21% |
Nov-24 | 1.89% | 5.48% |
Dec-24 | 2.37% | 5.22% |
Data Source: Office of the Economic Advisor
What is interesting is that the higher WPI inflation in December 2024 was despite the higher base. For instance, between November 2023 and December 2023, the WPI inflation had actually risen from 0.39% to 0.86%. That means, shorn of the base effect, the actually spike in WPI inflation in December 2024 would have been much larger. In December, manufacturing and food have played a limited role in the spike in WPI inflation.
The actual impact has come from the oil basket, especially in the light of oil spiking with the US toughening its sanctions on Russia. In terms of previous revisions, the October 2024 WPI inflation got revised upwards from 2.36% to 2.75%. Cumulative 9-month inflation in FY25 stands at 2.18% versus -1.05% in the corresponding 9 months of previous financial year.
WHAT WE READ FROM THE WPI INFLATION 9-MONTH TREND?
One way to understand WPI inflation on a more smoothened basis is to look at the cumulative 9-month data. Here is a quick dekko.
There is pressure on manufacturing basket, but in December 2024, most of the pressure on the WPI basket has come from oil & fuel.
WPI INFLATION SHIFTS: YOY AND MOM
Here is a quick snap of the break-up of WPI inflation and its 3 major components viz. primary products basket, fuel & power basket, and the manufacturing products basket for the last 3 months in a row. Here inflation is year-on-year.
Commodity Set | Weight | Dec-24 WPI | Nov-24 WPI | Oct-24 WPI |
Primary Articles | 0.2262 | 6.02% | 5.49% | 8.26% |
Fuel & Power | 0.1315 | -3.79% | -5.83% | -4.31% |
Manufactured Products | 0.6423 | 2.14% | 2.00% | 1.78% |
WPI Inflation | 1.0000 | 2.37% | 1.89% | 2.75% |
Food Basket | 0.2438 | 8.89% | 8.92% | 12.15% |
Data Source: Office of the Economic Advisor
Here are some key observations. Firstly, in the primary basket, December 2024 has seen pressure from minerals, while food has been flat. Secondly, while oil continues to be in contraction mode yoy, the monthly change shows oil exerting pressure on the WPI index. This can be attributed to the spike in oil prices after the US decided to tighten sanctions on Russia, which has been pushing up oil prices due to supply concerns. Lastly, manufacturing inflation is showing signs of stress, but the 14 bps accretion is modest. Let us now shift to the high frequency MOM data.
Commodity Set | Weight | Dec-24 WPI | Nov-24 WPI | Oct-24 WPI |
Primary Articles | 0.2262 | -2.07% | -1.35% | 2.61% |
Fuel & Power | 0.1315 | 1.90% | -1.14% | 1.09% |
Manufactured Products | 0.6423 | 0.00% | 0.07% | 0.70% |
WPI Inflation | 1.0000 | -0.38% | -0.45% | 1.29% |
Food Basket | 0.2438 | -2.20% | -0.94% | 3.22% |
Data Source: Office of the Economic Advisor
The short term pressures is essentially coming from fuel & power; while there has been a general high frequency tapering of primary articles and manufactured products.
WPI BASKET – BIG SWING FACTORS IN DECEMBER 2024
Swing factor are the drivers that trigger the shift in WPI. The left hand side (LHS) looks at positive drivers; while right hand side (RHS) looks at negative drivers for WPI (product-wise).
Commodity | WPI Inflation | Commodity | WPI Inflation |
Potatoes | 93.20% | Crude Petroleum | -6.86% |
Vegetable oils & fats | 30.47% | Crude & Natural Gas | -6.77% |
Vegetables | 28.65% | Cement, Lime, Plaster | -6.77% |
Onions | 16.81% | Petrol | -5.09% |
Fruits | 11.16% | High Speed Diesel (HSD) | -4.30% |
Wheat | 7.63% | Non-metallic Minerals | -3.03% |
Paddy | 6.93% | Basic Metals | -1.43% |
Cereals | 6.82% | Oil Seeds | -1.35% |
Minerals | 5.47% | Fabricated Metal Products | -1.31% |
Eggs, Meat & Fish | 5.43% | Semi-Finished Steel | -0.76% |
Data Source: Office of the Economic Advisor
Most of the pressure on WPI inflation is still coming from food product basket or the agricultural basket. In fact, 9 out of the 10 swing products are from the primary food basket. What about the commodities putting downward pressure on WPI inflation? Out of the 10 negative swing drivers, 9 are either mined or manufactured products; with oil seeds being the sole exception.
HOW WILL WPI INFLUENCE RBI MONETARY POLICY IN FEBRUARY 2025
The RBI will read two things into this spike in WPI in December 2024. Firstly, the oil inflation is picking up, and experience in the past has been that this can very volatile and also exert multiplier effect on inflation. Also, the higher prices are putting pressure on corporate costs and triggering cost-push inflation. However, the rate decision will also predicate on the fact that the rupee has been on a free fall and at ₹87/$, the RBI would surely find itself on the horns of a monetary dilemma!
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