India’s Wholesale Price Index (WPI) remained in the deflationary zone for the seventh consecutive month in October, the year-on-year rate coming in at (-)0.52% as against (-)0.26% in September, on account of the statistical effect of a high base, according to government data released on Tuesday. WPI inflation was 8.67% in October 2022.
High-base effect has played a key role in keeping WPI in the negative territory so far in all the months of the current fiscal year, but from November onwards it’s impact on the headline print is likely to get dampened as sequential price pressures are on the upside. These will likely bring the WPI back in the usual inflation zone. In April-October FY23, WPI inflation had averaged 13.43%, whereas in November-March, it had averaged 4.24%. For the entire FY23, WPI had averaged 9.60%
“The deflationary trend in WPI could end in the coming months with the support of favourable base fading away gradually and expectation of subdued commodity prices amid global demand weakness. However, for the full year, we expect WPI inflation to average below 1%,” said Rajani Sinha, chief economist, CareEdge. So far, in April-October, WPI averaged (-)1.6%.
In October, among the three groups, the inflation rate of ‘primary articles’ reduced to 1.82% from 3.70% the previous month, while that of ‘manufactured products’ rose to (-)1.13% from (-)1.34%, and ‘fuel and power’ to (-)2.47% from (-)3.35%. WPI’s food inflation, based on ‘food index’ , fell to 1.07% in October from 1.54% in September.
“Food inflation remained benign (in October) as vegetable and potato prices were markedly lower as compared to last year,” said Mohit Ralhan, chief executive officer, TIW Capital.
The fall in the inflation rates of ‘primary articles’ and ‘food index’ was due to the base effect as sequentially the indices of these two increased. The indices of both the two categories rose at the highest pace in three months.
The index of ‘fuel and power’ was up 0.65% on month, while the index of ‘manufactured products’ was flat.
Among the 14 sub-groups (mentioned in the press-release) of ‘manufactured products’ – which primarily comprises input goods used in industries and carries a 64% weight in the WPI basket – indices of nine rose sequentially. In September also indices of nine subgroups had risen month-on-month. This indicates persistence of input price pressures, and points to subsequent risk of pass-through to retail prices. However, so far, no such signs are visible.
Data released on Monday showed that core CPI inflation crashed to a 43-month low of 4.2% in October. Core inflation remained below the 5% mark for the fourth straight month in October, and below 6% for the eighth consecutive month. Perhaps, the pass-through has not taken place due to subdued demand. India Ratings and Research Chief Economist DK Pant said that the core inflation which has declined to 43 months low suggests “weakness in demand conditions.”
In the coming months, as food prices remain elevated, it should exert pressure on both wholesale and retail inflation prints, economists from ICICI Bank said in a note. However, “lower global commodity prices and manufactured goods inflation along with lower energy prices imply a benign outlook for inflation,” they said.
Moreover, during April-October, average CPI stands at 5.43%. Therefore, continued divergence between CPI and WPI well into Q3 FY24 could potentially distort growth estimates owing to issues related to the double-deflation method, noted ICICI Bank economists. The RBI has projected GDP growth in Q3 at 6.0% and for the full year at 6.5%.