Wholesale price index (WPI) inflation is likely to face further upside pressure as crude oil and metal prices remain elevated amid ongoing geopolitical tensions, a report said on Wednesday. The WPI inflation, which had moderated to 0.73% in December 2023 from 0.26% in November, is expected to trend higher in the coming months.
Key Drivers of WPI Inflation
According to the report by a leading financial institution, the main factors contributing to the upward pressure include sustained high prices of crude oil and industrial metals. These commodities have been impacted by supply chain disruptions and geopolitical uncertainties, particularly the Russia-Ukraine conflict and tensions in the Middle East.
Impact of Crude Oil Prices
Crude oil prices have remained above $80 per barrel, with Brent crude trading around $82-85 per barrel. The report notes that any further escalation in geopolitical tensions could push prices higher, directly affecting the WPI inflation as petroleum products have a significant weight in the index.
Metal Prices and Industrial Inputs
Similarly, metal prices, including steel, aluminum, and copper, have stayed elevated due to strong demand and supply constraints. This is expected to keep input costs high for industries, thereby contributing to wholesale inflation.
Outlook for WPI Inflation
The report suggests that the Reserve Bank of India (RBI) may need to monitor these developments closely, as sustained high WPI inflation could eventually spill over into retail inflation (CPI). However, the central bank is likely to maintain its accommodative stance for now, given that core inflation remains relatively subdued.
Analysts expect WPI inflation to average around 2-3% in the first half of 2024, with risks tilted to the upside. The trajectory will largely depend on global commodity prices and the resolution of geopolitical conflicts.
In conclusion, while the near-term outlook for WPI inflation is clouded by elevated oil and metal prices, a significant spike is unlikely unless there is a major escalation in global tensions. Policymakers will continue to watch these developments to ensure price stability.
