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WPI inflation highest in 27 months in Feb`21

…due to broad-based rise in inflation

* Wholesale Price Index (WPI) inflation stood at a 27-month high of 4.2% YoY in Feb’21, from 2.0% YoY in Jan’21 and 2.3% YoY in Feb’20 (Exhibit 1). The number stands higher than the market consensus of 4% YoY WPI inflation in Feb’21.

* Higher wholesale price inflation was on account of record-high inflation (since the new base started in 2012) of 5.5% YoY in non-food manufactured products (or core WPI) in Feb’21 – against 5.1% in Jan’21 and -0.6% in Feb’20 (Exhibit 2). Additionally, food (both primary articles and manufactured food items) – accounting for ~25% weight in the WPI basket – reversed the trajectory as it registered inflation of 3.3% YoY in Feb’21 v/s -0.2% YoY in Jan’21 (Exhibit 3).

* While primary food articles saw inflation of 1.3% YoY in Feb’21 (v/s -2.8% in Jan’21), inflation in manufactured food products stood at a 13-month high of 7.1% YoY in Feb’21, against 4.8% YoY in Jan’21.

* Manufactured products (WPI weight: 64.2%) posted the highest inflation (since the new series began in 2012) of 5.8% YoY last month vis-à-vis 5.1% in Jan’21 – on higher inflation in food, textiles, wood and wood products, paper and paper products, chemicals and chemical products, basic chemicals, fertilizers, rubber and plastic products, fabricated metal products, computer electronic and optical products, and machinery and equipment, among others (Exhibit 4).

* Primary articles (WPI weight: 22.6%) registered inflation of 1.8% YoY in Feb’21 (after two successive deflations), led by food articles and minerals.

* Fuel and power (WPI weight: 13.2%) registered its first inflation of 0.6% YoY in 12 months in Feb’21, driven by inflation in mineral oils (the first inflation in 12 months) and electricity (the first inflation in three months).

* Core (non-food manufactured products) WPI inflation came in high in Feb’21, similar to the trend seen in core Consumer Price Index (CPI) inflation last month. This is indicative of rising commodity prices at both the wholesale and retail levels.

* The uptick in inflation in Feb’21 and fall in Index of Industrial Production (IIP) in Jan’21 do not make the Monetary Policy Committee (MPC)’s task any easier. As we expect CPI inflation (MPC’s policy anchor) to edge up further in Mar’21, we expect MPC to maintain the status quo at its Apr’21 policy meeting.

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