WPI spikes to 30-month high of 5.25 pc as fuel prices soar

Soaring petrol and diesel prices fuelled wholesale inflation to a 30-month high of 5.25 per cent in January although vegetables and pulses moderated.

Wholesale price index (WPI) based inflation, which reflects the annual rate of price rise, has risen for the second straight month, the cash crunch following demonetisation notwithstanding.

In December and November, it stood at 3.39 per cent and 3.38 per cent, respectively.

In January 2016, the print was (-)1.07 per cent.

The previous high in WPI at 5.41 per cent was witnessed in July 2014.

As per Commerce Ministry data, prices of petrol, diesel, minerals and manufactured items like sugar and fibre witnessed a spurt.

Inflation in the 'fuel and power' basket more than doubled to 18.14 per cent in January, up from 8.65 per cent in the previous month. Inflation in diesel and petrol shot up to 31.10 per cent and 15.66 per cent during the month.

Oil prices have been on rise since OPEC in early December decided to cut output for the first time in eight years. Spot LNG prices have also risen from USD 5.25 to about USD 9 per MMBTU on winter heating requirements. Liquefied natural gas (LNG) is used for power generation.

"Continuous increase in prices of petrol and high speed diesel due to rise in global crude oil prices have to be taken care of by the policymakers since it may have an impact on import bills and subsequent impact on exchange rates," industry body Assocham said.

As per the data, food inflation basket witnessed contraction for the second month in a row with inflation at (-)0.56 per cent in January as against (-)0.70 per cent in December.

The rise in WPI is in contrast to the fall in retail inflation to a five-year low of 3.17 per cent in January.

Industrial production too had contracted 0.4 per cent in December 2016 to a four-month low, with consumer durables taking the worst hit on account of the cash crunch post notes ban.

Industry chamber Ficci said the industrial economy is still weak and there is a need to improve the flow of credit to manufacturing and infrastructure sectors.

"We also need to see a further reduction in the lending rates by banks and we hope that RBI's guidance on this to the banks will be followed up in the form of further reduction in rates for companies," Ficci said.