India's wholesale price index increased by 5.25 percent on the year in January, up sharply from 3.39 percent in December and well above the consensus forecast of 3.89 percent. This is the strongest increase in the WPI since early 2014. The index also rose strongly in month-on-month terms, up 0.98 percent in January after a fall of 0.16 percent in December.
This acceleration in WPI inflation was largely driven by wholesale fuel prices, which account for around 15 percent of the index. These prices increased by 18.14 percent year-on-year in January after an increase of 8.65 percent in December and 7.36 percent in November. Petrol prices rose 15.66 percent on the year, up from an increase of 8.52 percent, while diesel prices rose 31.1 percent, up from an increase of 20.25 percent.
Wholesale prices for manufactured goods (around 65 percent of the index) also strengthened from 3.67 percent to 3.99 percent. Wholesale prices for food (around 14 percent of the index) fell 0.56 percent on the year in December, little changed from a drop of 0.70 percent in January.
Today's report is in contrast with CPI data released earlier this week which showed consumer inflation fell for the sixth consecutive month in January. Officials at the Reserve Bank of India, however, have noted that recent weakness in consumer prices largely reflects the impact of lower prices for perishable food prices, which they do not expect to persist. They forecast CPI inflation to trend higher over the next twelve months, and cite higher global oil prices as an upward risk. Today's PPI data lends support to the RBI's view that price pressures are likely to build in the near-term and will likely reinforce their preference to keep policy settings on hold for the time being.