Wholesale prices dip further in July as food, fuel costs drop

India's wholesale prices moved deeper into deflation in July, driven by a decline in food and fuel prices, according to official data released Thursday.

The Wholesale Price Index (WPI) fell 0.6% in July, staying in the negative zone for the second straight month, compared with a 0.1% fall in the previous month and a 2.1% increase a year earlier. The reading was below this last in July 2023, when the index fell 1.2%.

"Sustained decline in food, fuel and energy prices were behind the deflationary trend in wholesale prices, keeping it at the lowest level in two years," said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).


Economists expect the reading to change course in August, due to a year-on-year rise in food prices and core inflation.

Rahul Agrawal, senior economist at ratings firm ICRA, said: "Looking ahead, ICRA expects the headline WPI to re-enter the inflationary territory in August, citing higher year-on-year readings for food and crude oil so far, depreciation in the USD/INR pair, as well as an unfavourable base." Heavy rains, he said, could push up prices of perishable goods sharply in the second half of August.

According to Barclays, WPI inflation will move back into the positive territory as the base effects fade and seasonal price increase continues. "The rise is likely to be only gradual though," it said. Wholesale food prices, which account for around one-fourth of the WPI, fell 2.2% from a year earlier in July compared with 0.3% in June. Key contributors to the drop include onion (which fell 44.4%), potato (down 41.3%), vegetables (down 29%), pulses (down 15.1%) and fruits (down 2.7%).

While lower food prices can support consumption demand, Jasrai cautioned that a prolonged decline could hurt the income of households dependent on farming activity, potentially leading to derailment in rural demand recovery that had been visible for the past few quarters. Inflation in manufactured products, which account for 64.23% of the WPI, accelerated 2.1% inflation in July compared with 2% the month before. Within this segment, vegetable and animal oils and fats posted the highest inflation at 22%, followed by food products (6.7%), and cement, lime and plaster (3.4%).

Primary articles and fuel and power registered deflation of 5% and 2.4%, respectively. The deflation was sharper at 11.2% in crude petroleum and natural gas.

Outlook

ICRA projects WPI inflation to average 1% in FY26, alongside a consumer inflation of 3.0-3.2%, suggesting nominal gross domestic product growth likely to be limited to 8% this fiscal year compared with 9.8% in FY25.