Producers’ inflation based on Wholesale Price Index (WPI) dipped to 1.34 per cent in the month of March as against 3.85 per cent in February. The drop in food prices was key factor behind the fall and the March number is the lowest in 29 months,

Editorial.March inflation dips, but deeper questions remain

“Decline in the rate of inflation in March, 2023 is primarily contributed by fall in prices of basic metals, food products, textiles, non-food articles, minerals, rubber & plastic products, crude petroleum & natural gas and paper and paper products,” a statement issued by the Commerce and Industry Ministry said on Monday. The base effect also pushed the WPI down,

Read more: Is WPI useful in India anymore? 

This decline has come after retail inflation based on Consumer Price Index slipped to 16 months low of 5.7 per cent in March which justify Monetary Policy Committee’s decision to hold the policy interest rate earlier this month. Now experts feel that fall in WPI will have impact on retail inflation but only after a lag.

Inflation in food articles, however, rose to 5.48 per cent in March as against 3.81 per cent in February. Inflation in wheat and pulses was 9.16 per cent and 3.03 per cent, respectively while in vegetables it was (-)2.22 per cent. Inflation in oilseeds was (-)15.05 per cent in March 2023. Fuel and power basket inflation eased to 8.96 per cent last month from 14.82 per cent in February. In manufactured products, inflation was (-)0.77 per cent as against 1.94 per cent.

Experts take

Commenting on latest number, Rajani Sinha with Chief Economist of Care Ratings highlighted a deflation for the first time in about three years in the manufactured products category on account of lower textile and metals prices. However, there has been uptick in food prices, somewhat offsetting the lower prices for fuel and power and manufactured products.

The downtrend is expected to continue, with the WPI inflation remaining below 1 per cent for the next three months, given the favourable base. Some uptick can be seen Q2 onwards as the support from favourable base fades, but the monthly WPI inflation is still expected to remain below 5 per cent in the absence of any major turnaround in global crude oil and commodity prices. For FY24, we expect WPI inflation to average around 2.6 per cent, lower than the estimated average retail inflation at 5.1 per cent,” she said.

Mohit Ralhan, Chief Executive Officer with TIW Capital says the negative inflation in vegetable prices and manufactured products indicates to easing of retail inflation as well in the coming quarter. The negative inflation of 23.53 per cent crude petroleum is also a big positive. RBI still may need to look for stabilization of WPI inflation at these levels and more importantly a reduction in the CPI index before taking the decision to pivot its policy stance.

“The US Fed is also appearing to be towards the end of its interest rate increase cycle and therefore the probability of a policy pivot in 2023 has gone up. With economic growth still looking on track, the reduction in inflation increases the headroom for policy maneuvering quite significantly and keeps India in its position amongst the global growth leaders,” he said.

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