Wholesale prices decline for fifth straight month to 0.5% in August

Wholesale inflation declined for the fifth consecutive month in August to 0.52% compared with 1.4% in July, which experts indicated would provide further comfort to Reserve Bank of India to hold rates in the upcoming meeting.

“With fall in commodity prices driving deflation in core WPI on y/y basis (which implies lower input costs for producers), currently there is limited pressure on consumer prices, resulting in broadly stable CPI core inflation. This is likely to comfort the RBI,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.

Reserve Bank of India last raised policy rates to 6.5% in February and has not instituted a rate hike since. The RBI’s MPC is scheduled to meet from October 4-6, 2023.


Earlier this week, retail inflation eased more than expected as decline in food prices brought down consumer inflation to 6.8% for August. Experts indicate that further fall in tomato prices along with the Rs 200 price cut in LPG cylinders, is likely to bring inflation around 5.5% in September.

However, they point that wholesale prices may return to inflation in September as the base effects wane and crude oil prices, which have been rising since July, weigh on WPI index.

“The degree of WPI deflation has been coming down and is likely to turn into inflation in the September print,” said VK Vijayakumar, Chief Investment Strategiest at Geojit Financial Services.

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Crude oil prices rose 7.5% sequentially in August easing the decline in WPI to 6.0% in August from 12.8% in the previous month, according to data released on Thursday.

Sequentially, 3% rise in fuel and power index drove the wholesale price index up 0.33% in August from the previous month.

“We could expect WPI inflation to enter the positive territory next month onwards. Additionally, rise in global crude oil prices and deficient rainfall domestically pose an upside threat,” said Rajani Sinha, chief economist, Care Edge.

But this is unlikely to make a significant dent on wholesale inflation. Gaura Sengupta projects wholesale inflation to average 0.2% in FY24, which she believes will upset government’s nominal GDP target.

“Nominal GDP growth for FY24 is likely to undershoot Union Budget Estimate of 10.8%YoY, due to deceleration in GDP deflator growth,” Sengupta pointed out, noting that it “represents downside risk to tax collection growth and this is reflecting in current tax collection trend.”

CareEdge projects WPI inflation to average 1-2% in FY24.

Not a wholesale decline

Food articles continued to post double digit growth with 10.6% growth in August, compared with 14.3% in July, owing to 48.4% inflation in vegetables.

Manufactured products, which account for two-thirds of the weight in the wholesale basket, continued to be in deflationary territory with a 2.37% decline in August, compared with 2.51% in the previous month.

However, prices of manufactured products rose sequentially.

“Moderate price rises across manufactured food products, textiles, base metals and metallic products contributed to the rise. Still, it is too early, in our view, to conclude that this trend will continue,” Bajoria noted.