Inflation based on the wholesale price index (WPI) dropped to an 11-month low of 12.41% in August, as a decline in price pressure in manufactured products and fuel offset a rise in food inflation.
With global commodity prices easing – especially of oil and a favourable base setting in – WPI inflation will likely drop progressively to a single digit by October after a gap of 18 months, some analysts reckon. This will ease pressure on retail inflation as well, albeit with a time lag, offering some much-needed leeway to both the government and the central bank to focus on growth.
Retail inflation reversed a three-month declining trend in August to touch 7% and remained above the central bank’s medium-term target of 2-6% for an eighth straight month. Of course, the gap between the two price gauges still remains high, indicating scope for further pass-through for some more time.
However, any further moderation in WPI inflation (once it hits the single digit) is expected to be gradual, as a weak rupee has made imports more expensive. Much will also hinge on the progress and distribution of monsoon showers.
The data showed that part of the moderation in inflation in the manufactured goods segment over the past two months can be attributed to basic metals and vegetable oils. As FE had highlighted earlier, the basic metals saw the direct or indirect impact of export duties on steel imposed by the government in late May. Similarly, the government’s move in May to allow duty-free imports of four million tonne of sunflower and soya oils until FY24 seemed to be yielding results.
WPI inflation in vegetable oils turned negative (-0.74%) in August, against 4.2% in the previous month. This segment witnessed high double-digit inflation until June. Similarly, inflation in basic metals dropped to 9.35% from 11.12%.
Overall manufactured product inflation slowed for a fourth straight month to 7.51% in August from 8.16% in the previous month. Core WPI inflation, too, hit a 17-month low of 8%.
However, primary food inflation spiked again to 12.37% in August from 10.77% in the previous month, reflecting elevated price pressure in cereals, fruits and vegetables. Cereal inflation touched 11.77% in August, against 9.76% in the previous month as wheat inflation soared to 17.35% from 13.61%, despite a ban on its exports since May. Inflation in fruits and vegetables hit 31.75% and 22.29% in August, respectively.
Fuel and power inflation, meanwhile, eased to 33.67% in August from 43.75% in July. Inflation in crude oil and natural gas dropped from the July level of 65.84% but still remained stubbornly high at 59.84%.
Icra chief economist Aditi Nayar said, “Notwithstanding the broad-based sequential hardening in prices of food items in early part of the ongoing month, we expect the WPI inflation to ease to ~11-12% in September, aided by the correction in global commodity prices.” Consequently, WPI inflation will likely ease to ~13% in the September quarter from 16.1% in the first quarter, she added.
WPI inflation has remained in double digits for 17 months now, which has been driven essentially by high global commodity prices, especially in the wake of the Ukraine war in February.