WPI inflation falls to lowest in 34 months
Indian wholesale prices fell in April, the first time since July 2020, indicating easing price pressures.
In more evidence that price pressures are easing in the Indian economy, wholesale prices, as measured by the Wholesale Price Index (WPI), fell on an annual basis in April, the first time this is happening since July 2020. Even in sequential terms, the index has remained unchanged in the last three months. The WPI data has come days after Consumer Price Index (CPI) fell by a percentage point to reach 4.7% in April. The April CPI and WPI values are the latest the Monetary Policy Committee (MPC) will look at when it meets in June to decide on interest rates. Most economists expect that RBI will not increase rates anymore and might resort to cutting them sometime later in the year.
Also read: Retail inflation at 18-month low of 4.7%
If this happens, RBI’s April move to maintain the policy rate, then described by RBI governor Shaktikanta Das as a “pause, not a pivot”, will indeed become a pivot -- and perhaps not a moment too soon. There are concerns that high interest rates could affect both investment as well as consumption spending -- although RBI will likely (and understandably) hold rates till the end of the monsoon season. It is becoming clear that growth, not inflation, will pose a bigger challenge to monetary policy this year.
Contracting by 0.9% in the month of April, WPI positively surprised analysts. A Bloomberg poll of economists projected a median contraction of 0.4%. The latest wholesale inflation is 0.42 percentage points lower than the 1.34% rise recorded in March and the lowest since June 2020 (-1.81%), indicating the easing of input prices. To be sure, recent WPI values are also the result of a favourable base effect as the index grew at double digits for 18 consecutive months from April 2021. WPI growth in April 2022 was 15.4% and reached an all-time high in the current series with a value of 16.6% in May 2022. WPI has been falling for 11 consecutive months now.
The decline in WPI inflation in April was largely driven by the contraction in manufacturing prices, while the other two subcategories of WPI – primary articles, fuel & power – slowed when compared to March. The contraction in wholesale prices of manufactured products (64% WPI share) accelerated to 2.42% in April from 0.77% in March. Growth in wholesale prices of primary articles (23% WPI share) slowed to 1.6% in April from 2.4% in March and that of fuel & power fell to 0.9% from 9%.
The food subcategory of WPI, which includes both primary articles and manufactured food items, saw wholesale prices growing by only 0.2% from 2.3% the previous month. Major food articles in the WPI basket also indicated a slowdown in rate of inflation in April from March. Cereal inflation cooled to 7.7% from 9.5% and milk inflation to 7.1% from 8.5%. However, there are some items in the WPI basket which show an increase in prices, although experts believe the prices of even these could ease going forward. Inflation in condiments and spices jumped to 13.8% in April from 11.6% in March. And prices of pulses in the WPI basket rose to 5.6% from 3%.
“While the decline in prices was partly due to a high base, even on a sequential basis, some easing of price pressures was evident; overall prices remained unchanged for the second month in a row, with only the food component rising sequentially owing to seasonal effects. 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 in a note.
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