India's wholesale prices sank deeper into the deflationary zone in May, data released on June 14 by the commerce ministry showed. The Wholesale Price Index (WPI) inflation fell to -3.48 percent from -0.92 percent in April, with a favourable base effect again playing a starring role.
At -3.48 percent, the latest WPI inflation print is the lowest in seven-and-a-half years. The last time wholesale inflation was lower was in November 2015, when it had come in at -3.68 percent.
The wholesale inflation data comes after the statistics ministry said on June 12 that headline retail inflation fell to a 25-month low of 4.25 percent in May.
Not only did wholesale prices fall on a year-on-year basis in May - resulting in the sub-zero inflation print but they were also lower compared to April, with the all-commodity index of the WPI down 0.9 percent. This is the biggest sequential fall in the index in five months.
Fine print
With the base effect rather favourable, the month-on-month change in prices is looked at more closely for signs of price momentum. However, in May, all three major groups of the WPI — primary articles, fuel and power, and manufactured products — saw their indices falling from April for the first time since December 2022.
Among primary articles, whose index was down 1.1 percent month-on-month, the biggest drop was in fruits (-4 percent) and vegetables (-2.6 percent). However, the index for potatoes jumped 19.2 percent, while that for eggs, meat, and fish was up 3.7 percent from April.
The index of manufactured products, which accounts for nearly two-thirds of the entire WPI, edged down by 0.4 percent. Within this category, the biggest month-on-month drop was in edible oils, whose index was down 3.6 percent.
At the same time, key categories such as pharmaceuticals, medicinal chemical and botanical products and fabricated metal products, except machinery and equipment, which together make up more than 5 percent of the WPI, inched up 0.4 percent and 0.6 percent from the previous month.
The index for the fuel and power group was down 2.6 percent.
The sharp drop in wholesale prices will be welcomed by policymakers, who have been working hard to lower inflationary pressures. A jump in input prices helped drive up Consumer Price Index (CPI) inflation last year and though they have since cooled, retail inflation has some more way to go.
While the CPI inflation fell to 4.25 percent in May, the Reserve Bank of India (RBI) expects it to average 4.6 percent in April-June before rising to 5.2 percent in January-March 2024, with the favourable base effect beginning to fade.
The RBI has left the policy repo rate unchanged at 6.5 percent since April, as it waits to see the full impact of its 250 basis points worth of rate hikes.
One basis point is one-hundredth of a percentage point.
Although inflation has cooled down, economists see growth also taking a hit in the coming months. This may force the RBI's monetary policy committee to start cutting interest rates in early 2024.
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