Wholesale inflation crashes to 21-month low of 5.85% in November

A labourer lies down atop goods ready for transportation at a wholesale market in New Delhi. (AP Photo/Altaf Qadri)

India's wholesale inflation fell to a 21-month low of 5.85 percent in November, according to data released by the commerce ministry on December 14.

At 5.85 percent, the latest Wholesale Price Index (WPI) inflation figure is a huge 470 basis points lower than what it was just two months ago.

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

WPI inflation stood at 8.39 percent in October and 14.87 percent in November 2021.

The drop in wholesale inflation comes two days after statistics ministry data showed the more closely tracked Consumer Price Index (CPI) inflation fell far more than expected to 5.88 percent in November - the first time it had fallen below the 6 percent upper bound of the Reserve Bank of India's (RBI) mandated range of 2-6 percent.

This is the first time the WPI inflation has been lower than CPI inflation since February 2021, when wholesale inflation was 4.83 percent and retail inflation 5.03 percent.

The sharp decline in WPI inflation in November was on a sequential fall in prices of two of the three major commodity groups of the WPI basket as well as a highly favourable base effect.

Food inflation fell to a 22-month low of 2.17 percent in November, almost a third of its October level of 6.48 percent, with the food index of the WPI declining 1.8 percent month-on-month.

At the same time, manufactured products inflation eased to 3.59 percent from 4.42 percent, although its index moderated by a more sedate 0.3 percent from October.

The fall in inflation of manufactured products is key as these items account for nearly two-thirds of the entire WPI basket.

While fuel and power inflation continued to fall sharply, coming in at 17.35 percent as against 23.17 percent in October, its index rose by 2.8 percent on a sequential basis.

Overall, the all-commodity index of the WPI fell by 0.3 percent on a month-on-month basis in November after having posted a similar increase in October.

The continued fall in WPI inflation, in conjunction with the drop in retail inflation, will be welcomed by policymakers.

The RBI has raised the repo rate by a staggering 225 basis points since the start of May to 6.25 percent to rein in eye-wateringly high price increases.

While wholesale inflation spent 18 months in double-digit territory before falling to 8.39 percent in October, the RBI's policy target – CPI inflation – has been above the medium-term target of 4 percent for 38 months in a row, with the central bank failing to meet its mandate after average CPI inflation had strayed outside the 2-6 percent tolerance range for three consecutive quarters.

The central bank's Monetary Policy Committee is scheduled to next meet from February 6-8. Economists are of the opinion that the rate-setting panel could deliver a final rate hike then, although it is seen as being a close call given that CPI inflation surprised on the downside in November by dropping below 6 percent.