Wholesale price inflation fell to a 25-month low of 3.85% in February thanks to a reduction in input costs as commodity prices fell and a favourable base effect, according to an official data released on Tuesday. This was the ninth straight month of cooling in wholesale price inflation after it hit a multi-decadal high of 16.63% in May 2022.
Coming it as it does on the heels of retail inflation data for the month that showed stickiness, the latest wholesale price index (WPI) data could provide some comfort to the monetary authorities, although the transmission of easing price pressures from the wholesale to the retail levels remains slow and somewhat erratic.
Retail inflation has remained high in recent months and was above the upper band of the RBI
WPI inflation was at 4.73% in January and at 13.43% in February 2022. WPI inflation for December 2022 was revised upwards to 5.02% from the provisional figure of 4.95%. Wholesale inflation in food articles registered an uptick at 3.81% in February compared to 2.38% in January.
“The difference in the indices is due to two things: the weights in the indices are different and WPI does not include services while the CPI does,” noted Madan Sabnavis, chief economist, Bank of Baroda
With wholesale inflation cooling more than anticipated by analysts, the probability of easing in retail inflation is now higher. However, the RBI could choose to maintain a hawkish stance in the April policy and raise rates by 25 basis points although it may take into account US Fed action this week as well.
The repo rate currently stands at 6.5% after the RBI hiked rates by 250 points since May 2022 as it tries to tame price pressures.
With a fall in prices of manufactured products as well as crude oil and input goods, the data indicates that the pass-through of higher input costs to finished product prices is either almost over or nearing completion.
Analysts expect wholesale inflation to ease further in coming months due to the base effect although there was a sequential increase due to gain in food and metal prices.
“This was the lowest reading since January 2021. Sequentially, prices at the wholesale level rose by 0.2% month on month, following a 0.1% increase in January. Still, we expect WPI to remain contained, as a shift in the global commodity-price cycle, falling perishable food prices and favourable base effects should continue to keep a lid on wholesale inflation in the coming months,” said Rahul Bajoria, MD and Head of EM Asia (ex-China) Economics, Barclays.
Rajani Sinha, chief economist CareEdge said WPI inflation is expected to ease further in coming months due to the high base, any strong rebound in global commodity prices will remain a key monitorable. “Favourable base could help WPI inflation turn negative in May and June 2023. For the next fiscal, we expect the wholesale inflation to ease below 3%,” she said, adding that a lower WPI print would also support downtrend in retail inflation.
Devendra Pant, chief economist India Ratings, said the agency expects wholesale inflation to come at a 29-month low of about 1.4% to 1.7% in March 2023 amid the sustained decline in global commodity prices and a favourable base effect.
Wholesale inflation in sub-groups of primary articles (3.28%), manufactured products (1.94%) and fuel and power (14.82%) eased in February as compared to the previous month. Core inflation, which represents non-food, non-fuel inflation slowed for the tenth consecutive month and was down at 2.1% in February as against 2.8% in January. Retail core inflation remained sticky at 6.1% in February.
Significantly, wholesale cereal inflation, which has been driving up retail food inflation, eased to 13.95% in February from 15.46% in January. This was due to cooling wheat prices, which however remained elevated at 18.54% last month from 23.63% in January. Inflation in paddy inched up to 8.6% in February from 7.18% in the previous month.
Milk inflation jumped to a 102-month high of 10.3% in the same period, Pant said, adding that inflation of fruits rose to a six-month high of 7.0% in February 2023 due to the early onset of summer season.