WPI stays in negative zone, sinks to three-month low of -0.5% in October

India's producer price gauge remained deflationary for the seventh straight month in October, reflecting softer primary food and energy costs compared with September, while the odds appear to be shortening on a trend reversal soon as a favourable base effect wanes.

Contraction in the wholesale price index (WPI) widened to a three-month low of -0.5%, compared with -0.3% the previous month. A negative reading indicates deflation. "Looking ahead, while global commodity prices, including crude oil continued to soften in the ongoing month, the uptrend in domestic prices of most food items and an unfavourable base are projected to lead to a turnaround in the WPI to a marginal 0.1% inflation in November 2023 (+6.1% in November 2022), after a gap of seven months," said Aditi Nayar, chief economist, Icra.

Icra expects WPI inflation to remain below 3% for the remaining months of FY24 if commodity prices continue to remain at benign levels. "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," said Rajani Sinha, chief economist, CareEdge. "However, for the full year, we expect WPI inflation to average below 1%." Experts point out that even with WPI rising, price pressures are likely to stay contained with both retail and wholesale inflation staying within manageable levels.


"Strong economic growth, coupled with resilient demand, should keep some pressure on inflation, but we see scope for headline inflation, both CPI and WPI, to remain manageable, with some near-term upside risks emanating from volatile vegetable price," said Rahul Bajoria, MD and head of EM Asia (ex-China) economics, Barclays.

Retail prices moderate
India's retail inflation declined below 5% for the first time in four months in October. Core retail inflation eased further to 4.2%. Core wholesale inflation has been in negative territory for eight straight months.

Although inflation in primary food articles eased in October to 2.53% from 3.35% in the previous month, sequentially, there was a 1.3% rise in the food articles index, driven by high prices of cereals, pulses and onions. "Food prices rose 1.3%, with gains among cereals, vegetables, pulses, and meat prices, while oilseeds fell again. Within perishables, prices for vegetables rose amid a broad-based increase, overshadowing a drop in tomato prices," said Bajoria.