In negative territory, WPI at 34-month low; to remain subdued

WPI had last recorded deflation in July 2020 at (-) 0.25 per cent and the previous low was seen 34 months ago in June 2020 at (-) 1.81 per cent. Wholesale inflation rate was 1.34 per cent in March 2023 and 15.38 per cent in April 2022. The all-commodities index has remained unchanged at 150.9 since February.

Experts said WPI inflation rate is likely to stay benign going ahead due to a high base effect and the easing of global commodity prices will help inflation of manufacturing products stay lower.

“We may expect to continue to see benign WPI inflation numbers due to the high base effect. Also the easing of global commodity prices will keep inflation of manufactured products down. Food inflation will need to be watched as the prices of wheat have tended to increase due to market conditions. Also, the monsoon prospects will have a bearing on inflation of kharif crops. This can be a concern going forward. However, WPI inflation is more of academic interest as it is not in the purview of MPC when deciding on interest rates,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

The more closely monitored retail inflation based on Consumer Price Index (CPI) had also eased to an 18-month low of 4.7 per cent in April, according to data released last week. It marked the second month of retail inflation remaining within the 4+/- 2 per cent band of Reserve Bank of India’s medium-term inflation target.

A deflationary trend in wholesale inflation, which reflects prices at producers’ end, is likely to reflect later in the retail inflation too with a lag. “We expect the deflationary trend to continue for the next 2-3 months with the full year WPI inflation averaging in the range of 1-2%. A lower WPI print could help in pulling retail inflation down with its lagged impact on the core CPI inflation,” said Rajani Sinha, Chief Economist, CareEdge Ratings.

The decline in the WPI inflation rate in April 2023 was primarily contributed by “fall in prices of basic metals, food products, mineral oils, textiles, non-food articles, chemical & chemical products, rubber & plastic products and paper & paper products”, the commerce and industry ministry release said.

This was the second month of the manufactured products category in deflationary zone at (-) 2.42 per cent in April due to lower basic metals, chemicals, textiles and manufactured food products prices. Fuel and power inflation also eased below 1 per cent at 0.93 per cent in April from 8.96 per cent in March due to lower prices for LPG, kerosene and other mineral oils.

In the food articles category, prices of cereals, wheat, fruits, milk and egg, meat and fish declined over the previous month. WPI rate for vegetables was (-) 1.50 per cent, potato at (-) 18.66 per cent, onion at (-)18.41 per cent, oilseeds at (-) 15.54 per cent and wheat at 7.27 per cent in April.

The sequential decline in food prices was essentially due to seasonal effect. “Food prices rose 3.5% YoY in April, slower than the 5.5% in March. Sequentially, WPI food prices rose by 1.5% MoM in April (1.1% in March), driven by increases in the prices of vegetables, fruit, and pulses. The m/m rise in vegetables and fruit prices was similar to CPI inflation, and attributable to a seasonal pattern as summer begins…we expect WPI inflation to continue to moderate as easing commodity prices drive input costs lower,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.