WPI eases to 11-month low of 12.4%
Significantly, what makes the latest WPI numbers more important is that they also suggest a sequential moderation in prices and not just a deceleration in the rate of increase compared to the previous year.
India’s wholesale price inflation, as measured by the Wholesale Price Index (WPI), fell for the third consecutive month in August, according to data released by the ministry of commerce and industry, reiterating the view that inflation may have peaked in the country — despite the reversal of the trend in retail inflation, which saw a marginal increase in August.
Significantly, what makes the latest WPI numbers more important is that they also suggest a sequential moderation in prices and not just a deceleration in the rate of increase compared to the previous year. This suggests that input price pressures might have begun to ease in the Indian economy, even though they remain high compared to historic levels.
Growing at 12.4% on an annual basis, August WPI positively surprised analysts. A Reuters poll of economists expected this number to be 13%. This is in contrast to the Consumer Price Index (CPI) released earlier this week which ended up higher than analyst estimates at 7%.
The latest WPI value is 4.2 percentage points lower than the May value when it reached an all-time high of 16.6%. To be sure, there is also a base-effect at play in the moderation in annual WPI numbers as WPI has been growing at double digits since April 2021. August is the 17th consecutive month when WPI has grown in double digits.
However, what makes the August WPI numbers significant (positively) is that this is the second consecutive month when the absolute value of the index has come down on a sequential basis. This suggests that prices are actually coming down and not just growing at a slower pace.
A category-wise analysis of the WPI numbers shows that inflation has come down for all categories except food items between July and August. Inflation for manufactured goods has come down from 8.16% to 7.51%. In the fuel and power category, annual inflation has come down from 43.75% in July to 33.67% in August. For the food category, WPI has increased from 9.41% in July to 9.93% in August. To be sure, food inflation is still lower than the 11.78% reading for the month of June.
One of the reasons food inflation has not had a major upward impact on WPI (unlike the CPI) is that the WPI has a lower weight (24.4%) for food items than the CPI (39%). Unlike CPI, which is meant to track inflation for an average household budget in India, WPI is expected to track producer prices.
However, where WPI food numbers present a concern is in the continuing spike in inflation for staple cereals such as wheat. Wholesale prices of wheat grew at 17.3% on an annual basis in August, the highest since April 2013. While paddy inflation was still relatively muted at 4.3%, the upward trajectory is clearly visible in its case as well. India is expecting a fall in rice output this kharif (winter crop) season and the government has already put in place measures to control prices such as a ban on export of broken rice.
The moderation in WPI notwithstanding, experts believe that RBI’s Monetary Policy Committee (MPC) will likely raise interest rates for the fourth consecutive time in October. “Wholesale price inflation continues to moderate, in line with falling global commodity prices…Still, elevated inflation on both the retail and wholesale fronts suggests the need for the RBI’s monetary policy committee to maintain vigilance over evolving price trends. We expect the MPC to front-load rate hikes, and deliver another 50bp rate increase during the September 30 policy meeting”, Rahul Bajoria, MD & Chief India Economist, Barclays said in a note.
MPC’s inflation targeting mandate treats the CPI as the benchmark inflation measure.
