India's wholesale price index increased by 3.58 percent in December, moderating from 3.93 percent in November. The index fell 0.52 percent on the month in December after increasing by 0.69 percent in November. In contrast, consumer price index data published last week showed an increase in headline inflation from 4.88 percent in November to 5.21 percent, the highest since mid-2016 and further above the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.
Lower WPI inflation in December largely reflects a pull-back in food inflation after strong increases in recent months. Food prices, which account for around 15 percent of the index, increased by 4.72 percent on the year in December, down from 6.06 percent in November, with year-on-year price gains still very strong for vegetables but markedly weaker for eggs, meat, and fish. Offsetting this drop in food inflation, the year-on-year increase in fuel and power prices (around 13 percent of the index) picked up from 8.82 percent in November to 9.16 percent in December, while inflation for manufactured products (around 64 percent of the total index) was steady at 2.61 percent.
Despite this divergence in WPI and CPI inflation in December, both show that price pressures have strengthened in recent months, in line with forecasts by the RBI. With recent PMI surveys indicating that economic growth has picked up, the outlook for inflation will likely be the main factor that determines the outcome of the RBI's next policy review, scheduled for early February.