India's wholesale inflation stays in deflationary zone for fifth month
Economists predict positive WPI inflation from October owing to fading high base effect over last year
India's wholesale inflation remained in the deflationary zone for the fifth consecutive month in August, according to data released on September 14 by the commerce ministry. The wholesale price index (WPI) inflation did rise to a five-month high of -0.52 per cent, up from -1.36 per cent in July, but it remained in negative territory.
This data follows the release of consumer price index (CPI) data for August on 12 September, which showed that India's headline retail inflation rate cooled to 6.83 per cent from July's 15-month high of 7.44 per cent. However, the general index of the CPI declined by 0.1 per cent month-on-month in August, while the all-commodity index of the WPI rose by 0.3 per cent sequentially.
Economists at CARE Ratings suggest that despite the negative WPI inflation for August 2023, it is likely to enter positive territory from the following month onwards.
The fuel and power category drove the momentum in wholesale prices in August, which, despite a year-on-year inflation rate below zero, saw a nearly 3 per cent month-on-month increase. Inflation for manufactured products remained below zero at -2.37 per cent in August, but the index for these goods increased by 0.1 per cent month-on-month, indicating rising price pressures.
The WPI inflation, based on the prices of 697 commodities, plays a crucial role in assessing the performance of India's economy and guiding policymakers. A rising WPI inflation rate may indicate economic growth, prompting expansionary fiscal policies, while a falling rate could signal an economic slowdown, leading to contractionary fiscal policies.
The significant components of WPI inflation include primary articles (food grains, edible oils, etc.), fuel and power (petroleum products, electricity, etc.), manufactured products (metals, machinery, textiles, etc.), and other items (transport services, education, medical care, etc.).
While some deflationary pressure was observed in mineral oils, textiles, chemicals, and metals, Rajani Sinha, chief economist at CARE Ratings, anticipates an uptick in WPI inflation due to fading high base effects and external factors like rising global crude oil prices. However, for the full fiscal year (FY24), the expectation is for WPI inflation to average in the range of 1-2 per cent.
Despite rising concerns about food prices, the Reserve Bank of India (RBI) views the spike as temporary, attributing it to supply-demand imbalances and weather conditions. As a result, the RBI left the repo rate unchanged at 6.5 per cent for the third consecutive meeting, even as it raised its CPI inflation forecast for 2023-24 to 5.4 per cent. Economists expect CPI inflation to drop below 6 per cent in September and continue to fall after that.