Wholesale inflation dropped to 4-month low of 1.31% in August

A drop in food and fuel prices saw wholesale inflation based on the Wholesale Price Index (WPI) drop to a four-month low of 1.31 per cent in August, data released by the Commerce & Industry Ministry on Tuesday showed. This is in contrast to retail inflation, based on Consumer Price Index, which rose a tad to 3.7 per cent in the month.

Despite lower inflation, a policy rate cut remains a distinct possibility.

“Positive rate of inflation in August 2024 is primarily due to an increase in prices of food articles, processed food products, other manufacturing, manufacture of textiles and manufacture of machinery & equipment, etc,” the Ministry said in a statement. Inflation in food items was 3.11 per cent in August, against 3.45 per cent in July. This was led by declining prices of vegetables, which dropped 10.01 per cent in August. However, inflation in potatoes and onions continued to be high at 77.96 per cent and 65.75 per cent, respectively, in August.

In a note, Barclays said the deceleration in wholesale prices was faster than its forecast and consensus, and was driven by month-on-month deflation in food prices and a continued decline in manufacturing costs. “This is in contrast to the CPI print, which showed retail price inflation accelerated in August compared to that in July. The divergence between the two indices was on account of the sharper sequential decline in wholesale primary food prices (-1.8 per cent) compared with retail prices (-0.3 per cent), and base effects,” the note authored by Shreya Sodhani, Regional Economist, Barclays.

• Also read: After retail inflation, wholesale inflation dips to 2% in July

ICRA Senior Economist Rahul Agrawal said while Kharif sowing has been healthy so far, surplus rainfall this month can potentially delay Kharif harvesting and/ or impact such yields, even as reasonably healthy reservoir storage at the pan-India level is likely to boost the sowing of rabi crops.

“The WPI inflation eased to a four-month low of 1.3 per cent in August 2024, with the fuel and power, core (non-food manufacturing), and crude petroleum and natural gas sub-groups together pulling down the headline WPI print by as much as 70 bps in the month vis-à-vis July 2024,” Agrawal said.

ICRA said global commodity prices have remained benign through September 2024 so far, which is likely to contain the sequential momentum in the non-food WPI. Additionally, the price of the Indian basket of crude oil has averaged 6 per cent lower in September 2024 on a sequential basis, while touching the lowest level in 33 months, which would also help contain the uptick in the headline WPI inflation print in the month.

Overall, ICRA expects WPI inflation to rise to 2 per cent in September 2024 from 1.3 per cent in August.