India’s annual wholesale price index-based inflation accelerated to a record high of 14.23 per cent in November due to a sharp increase in manufacturing costs and food prices.
The sharp rise in WPI inflation could become a major reason for concern as it could ultimately lead to a sharp rise in retail prices of goods and services.
It is worth mentioning that the annual wholesale inflation of 14.23 per cent in November is the highest since April 2005, according to Refinitiv data. In comparison, wholesale inflation came in at 12.54 per cent in October.
While retail inflation in November rose marginally, the sharp rise in wholesale prices could have an impact on cost of products in the near term.
Economists have expressed concern about the sharp rise in wholesale inflation, which reflects an uptick in input costs and the impact of rupee depreciation.
Aditi Nayar, chief economist at rating agency ICRA, told news agency Reuters that the WPI figures for November came as a shock. “We now forecast the WPI inflation to average 11.5% to 12% in the current fiscal year that ends in March 2022,” she said.
A rising gap has been observed between retail inflation and wholesale inflation over the past few months. Many manufacturers across sectors have tried absorbing higher input costs incurred by them, but most of these firms are expected to pass on the burden to customers as they struggle to maintain status quo.
It is worth mentioning that wholesale inflation has remained in double-digits for the eighth month in a row while headline retail inflation stood at 4.91 per cent. While retail inflation has remained below the Reserve Bank of India’s target of 2-6 per cent, it is likely to increase further in 2022 as domestic demand rises, especially at a time when companies have increased the prices of their goods.
A jump in retail inflation could slow down the pace of economic recovery as the central bank would be forced to hike key interest rates that are crucial for boosting growth. As the situation stands, India’s economy is poised to grow smoothly after expanding 8.4 per cent in the September quarter.