Wholesale prices in India rose to a 7-month high in the month of December. WPI inflation stood at 2.59 per cent, compared to 0.58 per cent for the previous month. High food prices that shot up retail inflation of December, is also being seen as the primary reason behind the rise in wholesale prices. The inflation based on WPI Food Index consisting of 'Food Articles' from the Primary Articles group and 'Food Product' from the Manufactured Products group increased from 9.02 per cent in November to 11.05 per cent in December 2019. WPI inflation in the prices of onion remained highest at 455 per cent.
The food items have around 15 per cent weight in WPI whereas they weigh more than 45 per cent in the CPI. This is the reason why high food prices do not affect WPI as much as it affects CPI. However, the increase in prices above the RBI’s benchmark may substantially hit the consumption-led growth and can leave people with less ability to spend.
"Persistently high inflation adversely impacts the economy's allocative efficiency and impedes growth. It also contributes to a worsening of income distribution by depreciating the real income of the poor," RBI said in its January bulletin. However, the central bank also stated that the relative emphasis on inflation and growth depends on the macroeconomic scenario, inflation and growth outlook, and signals emerging from incoming data.
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Meanwhile, India’s retail inflation stood at a 5-year high in December, with the retail prices of vegetables shooting up as high as 60 per cent. The Reserve Bank had set a target of keeping the inflation rate at around 4 per cent, with a range of +/- 2 per cent.