Wholesale inflation dropped into the deflation zone for the first time in three years in April, fuelling hopes of a further easing of retail prices and raising the prospects of a cut in interest rates.
The Wholesale Price Index (WPI) dropped 0.92% from a year earlier in April, data released on Monday showed, marking the 11th successive month of a drop in inflation.
The high base of last year and easing commodities prices contributed to the wholesale inflation slipping into negative. The wholesale inflation was 1.3% in March 2023 and 15.4% in April 2022.
"We expect the deflationary trend to continue for the next 2-3 months with the full-year WPI inflation averaging in the range of 1-2%," said Rajani Sinha, chief economist, CareEdge.
Data released on Friday showed retail inflation also slowed sharply in April to 4.7% from 5.7% in the preceding month.
"A lower WPI print could help in pulling retail inflation down with its lagged impact on the core CPI inflation," Sinha further said.Rahul Bajoria, head of EM Asia (ex-China) economics at Barclays, believes that besides the high base, the latest WPI print also indicated some easing of price pressures, which contributed to the decline.
"We expect WPI inflation to continue to moderate as easing commodity prices drive input costs lower," he added.
The RBI's next monetary policy committee meeting is scheduled for June 6-8. Last month, the MPC decided to hold rates after having lifted the repo rate by a cumulative 2.5 percentage points over 11 months beginning May 2022.
Broad-based decline
The deflation in the manufactured products category, which has a two-thirds weight in WPI, deepened to 2.4% in April compared with 0.8% deflation in March.
"The manufactured products category continued in deflationary zone for the second consecutive month due to lower basic metals, chemicals, textiles and manufactured food products prices," Sinha said.
Inflation in primary articles eased to 1.6% in April from 2.4% in March, even as cereals, wheat and milk continued to record over 7% increase in prices from the previous year.
Wholesale inflation in food articles eased to 3.5% in April from 5.5% in the preceding month. The decline in global crude prices helped fuel and light inflation plunge to 0.9% in April from 9% in March.
On a sequential basis, there was a 1.5% rise in WPI Food in April, owing to an increase in prices of vegetables, fruits and pulses.
"Food inflation will need to be watched as the prices of wheat have tended to increase due to market conditions. Also the monsoon prospects will have a bearing on inflation of kharif crops. This can be a concern going forward," said Madan Sabnavis, chief economist, Bank of Baroda.
The Open Magazine of India by Artmotion Network (https://magazine.armotion.com/)
