Economists expect this lower wholesale inflation to pass through to retail but the transmission may be slow. Data released on Monday showed retail inflation accelerated at a higher-than-expected pace to a three-month high of 6.52% in January, crossing the RBI’s upper tolerance limit of 6%. “We expect further declines in import costs to keep WPI contained in the coming months, but the pass-through to CPI is likely to remain slow,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays. He said the drop in WPI against the surprise rise in CPI clouds the policy outlook for the RBI.
The wholesale inflation rate in manufactured products, which has the highest weight (64.23%) in the WPI, eased to 2.99% in January from 3.37% in the preceding month. Wholesale inflation in cereals rose to 15.5% from 14% in December, lifting the overall food inflation to 2.4% from -1.3% in the preceding month. Wholesale inflation in wheat was also in double digits at 23.6%.