Wholesale inflation unexpectedly falls to -0.52% in October

The wholesale inflation data comes days after the statistics ministry said on November 13 that the headline retail inflation rate fell to a five-month low of 4.87 percent in October.

India's wholesale inflation remained in the deflationary zone for the seventh month in a row in October, coming in at -0.52 percent, data released by the commerce ministry on November 14 showed. Wholesale Price Index (WPI) inflation stood at -0.26 percent in September and 8.67 percent in October 2022.

At -0.52 percent, the latest wholesale inflation print is below the consensus estimate, with economists expecting it to come to around -0.2 percent.

The WPI data comes a day after the statistics ministry said on November 13 that the headline retail inflation fell to a five-month low of 4.87 percent in October, down 257 basis points from July's 15-month high of 7.44 percent. Over the same period, WPI inflation has risen by just 71 basis points.

One basis point is one-hundredth of a percentage point.

Like the general index of the Consumer Price Index, the all-commodity index of the WPI also rose month-on-month (MoM) in October, but by a smaller magnitude of 0.4 percent as against 0.7 percent for the CPI.

Driving wholesale inflation lower in October were manufactured products. These items, which make up nearly two-thirds of the WPI, did not see any sequential change in their prices, cancelling out some of the month-on-month increase seen in the food index (1.01 percent) and fuel and power (0.65 percent).

Month-on-month gains in the price index are an indication of price momentum.

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Within manufactured products, the categories with the largest MoM fall in prices included semi-finished steel (-1.2 percent), edible oils (-0.7 percent), and rubber and plastic products (-0.5 percent).

"This perhaps reflects some moderation in global commodity prices, as we have seen visible declines in prices of industrial raw materials recently," said Rahul Bajoria, Managing Director and Head of EM Asia (ex-China) Economics at Barclays.

On the other hand, manufactured food products (+0.5 percent), tobacco products (+0.6 percent), and apparel (+0.7 percent) clocked the largest sequential gains.

If overall price developments in manufactured products helped bring down wholesale inflation in October, the food component of the WPI rose MoM for the first time in three months, although a favourable base effect meant wholesale food inflation edged down to 1.07 percent last month from 1.54 percent in September.

The food index was pushed higher largely due to a 23.5 percent MoM jump in the price index for onion, with the overall index for vegetables up only 4.2 percent MoM in October.

What will be of concern to the government and the Reserve Bank of India (RBI) is that several other key food items saw a sequential rise in prices, including cereals (0.9 percent), pulses (2.1 percent), and eggs, meat, and fish (3.6 percent).

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"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 percent," said Rajani Sinha, Chief Economist at CareEdge.

However, WPI inflation is not the RBI's mandated target indicator. However, developments in CPI inflation are expected to be such that while the RBI's forecast of 5.6 percent for October-December will likely be undershot, it may not result in any easing of monetary policy by the Monetary Policy Committee (MPC), with economists seeing the possibility of the repo rate remaining unchanged at 6.5 percent till August 2024.