November WPI inflation eases to 1.89% on base effect

17 Dec 2024 , 05:58 AM

NOV-24 WPI INFLATION EASES TO 1.89% ON BASE EFFECT

The wholesale price index (WPI) inflation for November 2024 eased from 2.36% to 1.89%. In a sense, the WPI inflation has also eased in tandem with the food basket, like the easing of retail CPI inflation from 6.21% to 5.48%.

Month	WPI Inflation (%)	CPI Inflation (%)
Nov-23	0.39%	5.55%
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	2.36%	6.21%
Nov-24	1.89%	5.48%

Data Source: Office of the Economic Advisor

Incidentally, a large chunk of the fall in WPI inflation was due to the base effect. Between October 2023 and November 2023, WPI inflation surged from -0.26% to +0.39%. That was  largely responsible for the fall in the WPI inflation in November 2024. Much of the current fall in WPI inflation is on account of the primary basket; which includes food and other primary products. In terms of previous revisions, the September 2024 WPI inflation got revised upwards from 1.84% to 1.91%. While the food basket and the overall primary basket inflation have eased in November 2024, the manufacturing inflation has gone up sharply. This signals that WPI is adding to cost of funds of Indian companies due to higher input costs. Cumulative 8-month inflation in FY25 stands at 2.11% versus -1.29% in the corresponding 8 months of the previous financial year.

WHAT WE READ FROM THE WPI INFLATION 8-MONTH TREND?

One way to understand WPI inflation trends is by looking at a time series data for FY25 (up to November 2024). For simplicity, we look at cumulative 8-month data. Here is a dekko.

• The headline WPI inflation for FY25 stood at 2.11%, compared to -1.29% in the previous year, same period. This is due to the fact that in the previous financial year, 8 out of the 12 months had reported contraction in WPI.
• The primary basket WPI for FY25 at 5.90% is twice the corresponding FY24 figure of 2.95%. This has been triggered by food basket WPI inflation surging from 6.13% last year to 8.56% in FY25. In the food basket, maximum pressure came from potatoes, onions, and vegetables. Minerals, in the primary basket, reported tapering of WPI inflation.
• Let us turn to Fuel & Power basket. This basket saw WPI inflation hardening from -6.22% to -1.75%; albeit still in contraction mode. Most of the pressure came from a spike in LPG and diesel prices, even as petrol prices almost remained flat in FY25.
• Let us turn to the critical manufacturing basket, with 64.23% weight in the WPI basket. As the supply chain benefits saturated, the impact was directly felt in the form of a spike in manufactured products inflation. For FY25, the inflation in manufactured products stood at 1.19%, compared to -2.02% in FY24. This has been one of the major challenges for the Indian economy, triggering higher input costs.

There is pressure on manufacturing basket, with bulk of the pressure coming from food and beverage products. However, cost is an issue in textiles and chemicals manufacturing too.

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	Nov-24 WPI	Oct-24 WPI	Sep-24 WPI
Primary Articles	0.2262	5.49%	8.09%	6.48%
Fuel & Power	0.1315	-5.83%	-5.79%	-3.85%
Manufactured Products	0.6423	2.00%	1.50%	1.07%
WPI Inflation	1.0000	1.89%	2.36%	1.91%
Food Basket	0.2438	8.92%	11.59%	9.81%

Data Source: Office of the Economic Advisor

Here are some key observations. Firstly, the food basket has led the WPI inflation lower, but it looks largely due to the base effect. Secondly, the tapering of the food basket has let to tapering of the primary basket also. Thirdly, energy is the one item that is trending lower but the fall has been very marginal this month. Lastly, manufacturing inflation is showing signs of stress, as it has surged from 1.5% to 2.0%. Let us now shift to the high frequency MOM data on WPI inflation, which captures short-term trends more effectively.

Commodity Set	Weight	Nov-24 WPI	Oct-24 WPI	Sep-24 WPI
Primary Articles	0.2262	-1.20%	2.46%	0.21%
Fuel & Power	0.1315	0.41%	-0.48%	-0.74%
Manufactured Products	0.6423	0.35%	0.42%	0.42%
WPI Inflation	1.0000	-0.06%	0.90%	0.19%
Food Basket	0.2438	-0.45%	2.71%	1.45%

Data Source: Office of the Economic Advisor

What is our quick reading of the MOM high frequency WPI inflation data. Short term pressures continue to be high on manufactured products but is rising in fuel. However, food is the one basket that has seen a tapering of the high frequency WPI inflation in November.

WPI BASKET – BIG SWING FACTORS IN NOVEMBER 2024

Swing factor are the drivers that trigger the shift in WPI. It is not just about weightage, but about the extent of the movement. The left hand side (LHS) of the table looks at positive drivers; while right hand side (RHS) looks at negative drivers for WPI.

Commodity	WPI Inflation	Commodity	WPI Inflation
Potatoes	82.79%	Crude & Natural Gas	-8.11%
Vegetables	28.57%	Crude Petroleum	-7.72%
Beverages	27.99%	Cement, Lime, Plaster	-6.47%
Vegetable oils & fats	20.16%	Petrol	-6.83%
Food Products	9.44%	High Speed Diesel (HSD)	-5.68%
Fruits	8.41%	Non-metallic Minerals	-2.97%
Wheat	8.35%	Fabricated Metal Products	-2.87%
Cereals	7.81%	Basic Metals	-1.14%
Paddy	7.58%	Non-food Articles	-0.98%
Minerals	5.89%	Semi-Finished Steel	-0.51%

Data Source: Office of the Economic Advisor

On the left hand side (LHS) are the products that are driving yoy WPI inflation higher. Most of the pressure on WPI inflation is still coming from food product basket or the agricultural basket. In fact, 8 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, all of them are either fuel products or manufactured products.

WILL THE LOWER WPI INFLUENCE RBI RATE DECISION?

Will the lower WPI inflation in November 2024 be a trigger for the RBI to cut rates? That is very unlikely because, like the CPI, the fall in WPI inflation is also largely about the base effect. Secondly, even amidst the falling headline WPI inflation, the manufacturing WPI is sharply higher this month. Under these circumstances, it is unlikely that the RBI would give much credence to the fall in WPI, while making its rate decision in February 2025 MPC meet.