Wholesale Inflation Falls to 2Yr Low Due To Softening Commodity Prices

Wholesale price-based inflation in India declined to a 2-year low of 4.73% in January, driven by a favourable base effect and softening commodity prices. 

This is the eighth consecutive month of decline in the rate of wholesale price-index based inflation. Although inflation in manufactured items softened, inflation in food articles increased to 2.38% in January. 

Fuel and power basket inflation eased to 15.15%, while in manufactured products it was 2.99% in January. The decline in the rate of price rise was mainly due to mineral oils, chemicals, chemical products, textiles, crude petroleum, natural gas, and food products.

Factors Contributing to the Decline of WPI Inflation

According to the Commerce and Industry Ministry, mineral oils, chemicals & chemical products, textiles, crude petroleum & natural gas, textiles, and food products were the main factors contributing to the decline in the rate of inflation in January. Economists said that a favourable base effect and falling global prices aided in reducing manufacturing prices. They also said that going forward, softening commodity prices would help ease WPI inflation further.

Inflation in Food Articles and Other Categories

In the case of food articles, inflation rose to 2.38% in January, from (-) 1.25% in December 2022. Inflation in pulses was 2.41%, while in vegetables it was (-) 26.48%. Inflation in oil seeds was (-) 4.22% in January 2023.

Fuel and Power Inflation and Manufactured Products Inflation

Fuel and power basket inflation eased to 15.15%, from 18.09% in December 2022. In manufactured products, it was 2.99%, against 3.37% in December 2022.

Retail Inflation and RBI's Projections

In contrast to the deceleration in January WPI, the retail inflation data released on Monday showed that consumer price index (CPI) or retail inflation rose to 6.52% in January, from 5.72% in December 2022. In its monetary policy review last week, the RBI hiked policy rates by 25 basis points to 6.50% saying core inflation still remains sticky. 

The RBI has bettered inflation projection for the current fiscal to 6.5% in 2022-23, from 6.8% predicted earlier. The RBI expects retail inflation to average at 5.7% in the January-March quarter assuming an average crude oil price (Indian basket) of USD 95 per barrel.