Price of wholesale goods at its lowest since November 2015, contracts by 3.5% in May

Wholesale Price Index (WPI) shrank by 0.9% in May from April, with prices contracting across all major subcategories which positively surprised analysts.

Wholesale prices contracted for the second consecutive month in May on the back of lower food and fuel prices, underlining the fact that commodity prices are not just moderating in terms of growth but actually coming down in the Indian economy.

WPI reached an all-time high in the current series with a value of 16.6% in May 2022, and has been falling since then.

The Wholesale Price Index (WPI) contracted by 3.5% in May reaching its lowest value since November 2015 according to the data released by the ministry of commerce and industry. To be sure, recent WPI values are also a result of favourable base effect as the index grew at double digits for 18 consecutive months from April 2021. It reached an all-time high in the current series with a value of 16.6% in May 2022, and has been falling since then.

What makes the latest WPI numbers more important is that they also show a sequential decrease on a month-on-month basis. The WPI index shrank by 0.9% in May from April.

Contracting by 3.48% on an annual basis, May WPI positively surprised analysts. A Bloomberg forecast of economist had a median projection of 2.5% contraction in WPI for the month of May.

Retail inflation, as measured by the Consumer Price Index, fell to a 25-month low of 4.25% in May.

A disaggregate analysis of the WPI shows that the prices are contracting across all major sub-categories. Manufactured goods, which have a two-third share in the WPI basket, had a contraction of 3%. Primary articles saw a contraction of 1.7% and food items and fuel and power category had a contraction of 9.2%. Food items, which include both primary and manufactured products, saw an annual contraction of 1.6% in wholesale prices. To be sure, cereal and milk inflation continues to remain high at 6.9% and 6.8% respectively, but even these numbers have been coming down in the past few months. Cereal inflation was at 15.7% in January 2023 and milk inflation was at 10.3% in February.

“The continued easing in the WPI trajectory follows the release of retail inflation data last week, which showed a moderate seasonal acceleration in momentum of food inflation, but deceleration in core inflation”, said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays in a note.

Experts believe that price pressures can increase going forward at the back of fading favourable base effects. “Base effects in weighing on the WPI are likely to fade from June onward, though the headline print may remain in deflation on a y/y basis in the near term,” Bajoria added.