WPI inflation seen below zero in April for first time since July 2020

WPI inflation is expected to ease further on the back of high base effect.

India's Wholesale Price Index (WPI) inflation is expected to have fallen below zero in April, largely due to the base effect, for the first time since July 2020.

The WPI inflation has been falling for some time now with the figure dropping to 1.34 per cent in March. It was at 3.85 per cent in February and 4.73 per cent in January.

The WPI inflation sequentially remained flat with primary article inflation at 1.16 per cent being offset by a contraction in fuel & power and manufactured products at 1.26 per cent and 0.28 per cent respectively.

The fall in WPI is likely to have a positive impact on retail prices as well in terms of cooling them down. India Consumer Price Index (CPI)-based inflation softened sharply in April, hitting an 18-month low of 4.70 percent.

"WPI inflation likely dropped to -0.6 percent on base effects and downward pressure on commodity prices. With a high correlation between India WPI and China PPI, a deeper expected contraction in the latter is likely to weigh on the former. This is a unique month with both WPI and CPI estimated to slip to multi-month or multi-year lows. Yet elevated services inflation is likely to keep CPI inflation high, as WPI goods (ex-gold, food and beverages, and fuel) that map directly/prominently to the CPI basket have a weight of just 15 percent. Within WPI, we expect both food and core (non-food manufactured products) WPI to slip into the negative zone in April even as fuel inflation likely drops to low single digits. Going forward, we see WPI inflation staying low (negative or low single digits) in the next 6-12 months assuming a muted move in domestic food and global commodity prices," said Kanika Pasricha, economist, Standard Chartered Bank.

Other economists also see WPI inflation in negative territory, with their estimates ranging from -0.1 percent to -0.6 percent.

The rapid fall in April is due to the base effect as sequentially the gauge showed a 0.5 per cent climb compared to March and a 0.6 per cent rise for the food index.

The RBI's MPC takes into account the CPI index for arriving at the monetary policy decisions. A lower CPI print for April means that the RBI could keep interest rates unchanged in the June policy depending on how the trajectory pans out until then.

Read more: April CPI inflation crashes to 18-month low of 4.7%

The RBI Governor, Shaktikanta Das, in the April policy review, said that the pause should not be seen as a pivot and that the RBI is ready to act whenever the situation arises. However, most economists see the rate hike cycle to have come to an end.