Wholesale inflation turns negative in April, after retail inflation eases to 18-month low

• In April, the decrease in inflation is mainly attributed to decline in prices of cereals, wheat, vegetables, poultry, fish, minerals, crude petroleum and natural gas, among others.
• Overall wholesale inflation was at 8.39% in October and has been falling since then.
• Sonal Badhan, economist at Bank of Baroda, said this trend is likely to continue as weak global growth momentum, led by the US and China, will maintain downward pressure on prices.

India’s wholesale inflation based on the Wholesale Price Index (WPI) turned negative in April at minus 0.92%, official data released on Monday by the Ministry of Commerce and Industry showed. This is the first time it has entered negative territory since July 2020.

The decrease in inflation in April is mainly attributed to the decline in food articles, cereals, wheat, vegetables, potato, fruits, eggs, meat and fish, minerals, crude petroleum and natural gas, and steel, among others.

“Within food, while prices of vegetables, milk, eggs, meat and fish exhibited downward pressure, upward movement in prices of food grains, particularly pulses and paddy needs to be watched more closely. Manufactured products have benefited much from the decline in international commodity prices,” said Sonal Badhan, economist at Bank of Baroda.

Badhan said this trend is likely to continue as weak global growth momentum, led by the US and China, will maintain downward pressure on prices. Even oil prices are seen weakening, which in turn will provide support to fuel and power inflation index. Going ahead, we maintain that the trajectory of food prices in the wake of ongoing heat wave conditions and performance of monsoon will be critical, Badhan said.

Wholesale inflation has been easing – in March it was at 1.34% against 3.85% in February. Overall wholesale inflation has been on a downward trend since October when it hit 8.39%. Notably, the WPI-based inflation had been in double digits for 18 months in a row till September.

Retail inflation comes below RBI’s upper tolerance limit

This April, retail inflation eased sharply to 4.7%, an 18-month low, as against 5.7% the previous month. It is closing in on the lower tolerance limit of the Reserve Bank of India’s (RBI) 4-6% target.

India's retail inflation was above RBI's 6% target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.

“Looking ahead, a favourable base and continued ebbing of demand will help in bringing the headline CPI number lower in the coming months. A positive outlook for the domestic currency and lower commodity prices could also bode well for the inflation outlook. Nevertheless, we remain wary of upside risks emerging from weather-led disruptions if El Nino conditions turn out to be more severe than currently anticipated. Possible heatwaves in the summer could also pose a concern,” said a report by CareEdge.

In early April, the Reserve Bank of India kept interest rates unchanged at 6.25%, in spite of wide expectation that it would raise it by another 25 basis points.

RBI’s Monetary Policy Committee (MPC) had unanimously decided to keep the repo rate unchanged, RBI governor Shaktikanta Das had said in his speech. “The decision to pause repo rate is for this meeting only. MPC will not hesitate to take further action in future meetings if it’s needed,” Das added, insisting that the fight against inflation was not over.

Before the pause, the MPC had hiked the repo rate six times beginning May 2022, with the total quantum of rate hikes standing at 250 basis points.

(With inputs from ANI)

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