Wholesale price-based inflation falls to 21-month low: What does this mean? Analysts decode

WPI, CPI Data: Softening of wholesale price-based inflation (WPI) provides confidence for a stable consumer price index (CPI) inflation going forward, several analysts said, while decoding the WPI numbers which eased to a 21-month low at 5.85 per cent on Wednesday.

“Now with WPI too falling to a 21-month low of 5.85 per cent, it provides confidence for the sustainability of a stable CPI going forward,” Apurva Sheth, Head of Markets Perspective & Research, Samco Securities said in his comment on inflation.

He added, “One of the significant reasons for this steep fall in WPI was food inflation falling to a 22-month low of 2.17 per cent. With better expectations of a Rabi output this year, the food inflation seems immune from supply-side worries as of now.”

Also Read: Wholesale price inflation declines to 21-month low of 5.85% in November

With both the headline inflation numbers showing good improvement it would be fair to assume that we are almost standing at the cusp of the terminal rate, Sheth further added.

The recently announced CPI inflation came in at 5.88 per cent for November falling below the Reserve Bank of India’s (RBI) upper tolerance levels of 6 per cent for the first time since January 2022.

Amid this, Umesh Kumar Mehta, CIO, Samco Mutual Fund said that CPI inflation coming at 5.88 per cent is no surprise since the prices of food, energy, and essentials had started to fall for a while but the same is now getting captured in softening inflation numbers.

Also Read: Analysts heave sigh of relief as inflation falls below RBI’s 6%-mark; says IIP contraction bigger cause of concern

The RBI too saw this coming and hence the rate hike this time was lower than the previous ones, Kumar said. “Overall, the economic and monetary conditions are ripe for the bulls to come back in the calendar year 2023 with more vengeance and perhaps, good times for investors ahead,” he added.

It is for the second consecutive month in November that the WPI inflation has stayed below the double-digit mark. Before October, it was above 10 per cent for 18 straight months since April 2021. In November 2021, the WPI-based inflation was 14.87 per cent.

The Reserve Bank had last week said the worst of inflation is behind us, but there is no room for complacency and hiked the benchmark policy rate by 35 basis points to 6.25 per cent.

The central bank also said it will keep "Arjuna's eye" (keen focus) on the evolving inflation dynamics and projected inflation to remain above 4 per cent for the next 12 months.