WPI inflation in May falls to over 7-year low of -3.48%, shows govt data

India’s Wholesale Price Index (WPI)-based inflation recessed further into deflationary territory in May, falling to over seven year low at minus 3.48 per cent, from minus 0.92 per cent in April, data released on Wednesday by the Ministry of Commerce and Industry showed. 
 

The deflation in factory gate inflation for the second consecutive month in 2023-24 comes on the back of a higher base effect and due to a fall in prices of mineral oils, basic metals, food products, textiles, non-food articles, chemical products, crude petroleum, and natural gas.

 

The wholesale inflation was 16.63 per cent in May 2022. Earlier, it was minus 3.7 per cent in October 2015.
 

Data shows the prices for manufactured items (minus 2.97 per cent) contracted further in May, from minus 2.42 per cent in April, led by a decelerated price rise in items such as beverages, apparel, cement, and mineral products.

 

Conversely, the prices of chemicals (minus 4.63 per cent), textiles (minus 8.28 per cent), manufactured food products (minus 6.85 per cent), fats (minus 29.54 per cent), basic metals (minus 9.8 per cent), paper products (minus 6.33 per cent), and rubber products (minus 3.03 per cent) contracted in May, from their levels a year ago.
 

Rajani Sinha, chief economist, CARE Ratings, said, “The contraction was more due to a sharper deflation in the fuel and light category owing to a broad-based decline in mineral oil prices. The prices of manufactured products eased due to an overall decline in global commodity prices.”

 

The prices for fuel and power saw sharp contraction to minus 9.17 per cent, from 0.93 per cent in April, on the back of contraction in the prices of liquefied petroleum gas (minus 24.35 per cent), petrol (minus 9.45 per cent), and high-speed diesel (minus 17.03 per cent).

Although food inflation, excluding manufactured food items, eased to 1.51 per cent, from 3.54 per cent in April, the inflation rate for many of the items, including paddy (7.33 per cent), cereals (6.89 per cent), wheat (6.15 per cent), milk (6.83 per cent), and pulses (5.76 per cent) remained elevated.

Alternatively, the prices of vegetables (minus 20.12 per cent), onions (minus 7.25 per cent), and potatoes (minus 18.71 per cent) contracted in May, compared with their levels a year ago.

Deepak Sood, secretary general, Associated Chambers of Commerce and Industry of India, says prices are softening for most items, even as there is a gap between WPI-measured inflation and Consumer Price Index-gauged retail inflation.

“Negative trajectory in wholesale prices should help the overall input cost in the value chain. While the trend is expected to continue, it is important to see how the monsoon plays out as food prices are deeply influenced by rains,” he adds.

Echoing the sentiment, Sinha adds that wholesale inflation is expected to remain subdued in this fiscal year (2023-24) on account of a fall in international commodity prices and proactive supply-side measures by the government, yet the chances of a severe El Niño and its impact on agriculture production and food prices pose an upside risk to WPI inflation.

Earlier this month, the six-member monetary policy committee of the Reserve Bank of India (RBI) had decided to maintain the status quo in the repo rate for the second consecutive review meeting, basing itself on easing inflation and brighter growth prospects.

Also, it had decided to return to its primary objective of targeting headline inflation of 4 per cent, which was kept in abeyance in the past three years.

The RBI had, however, emphasised that its decision to pause should not be seen as a “pivot”.