Wholesale inflation slows in January as food prices soften

WPI had risen to 0.73 % in December, accelerating from 0.26% in November. The inflation stood at 4.8% a year ago. 

The January figure is lower than economists' expectation of a 0.53% rise, according to a Reuters poll.

Wholesale inflation remained in the negative territory between April and October last year due to a fall in prices of commodities like chemicals and chemical products, electricity, textiles, basic metals, food products, paper and paper products.

Wholesale inflation entered positive territory for the first time in seven months in November.

WPI remained positive during January due to an increase in prices of food articles, machinery & equipment, other manufacturing, minerals, other transport equipment as compared to October when the wholesale inflation was in negative, the commerce ministry said in a statement.

Food inflation fell to 6.85% in January from the four-month high of 9.38% in December, due to the easing of prices of paddy, cereals, pulses, vegetables, onion, fruits, and milk.

Prices of non-food articles declined 6.56%, fuel and power prices fell 0.51%, while crude petroleum and natural gas prices accelerated by 0.20% during January.

Prices of manufactured products declined 1.13% during the month.

The WPI had remained in the deflationary zone earlier, helped by a favourable base and falling commodity prices, according to economists.

It entered the positive territory in November due to the increasing food prices and a fading base effect. However, WPI is expected to ease in the coming months due to softening of global commodity prices.

"The uptick was led by items pertaining to fuel, food and crude, even as manufactured non-food items (core-WPI) remained in the deflationary zone for the tenth straight month. Looking ahead, the early data for January 2024 depicts a sequential fall in domestic prices of most food items, as well as a softening in global commodity prices," rating agency ICRA said in a statement.

India's consumer price index (CPI)-based retail inflation fell to a three-month low of 5.1% in January against 5.1% in December and 5.7% in November, aided by a slower rise in prices of food items like cereals, milk and milk products, fruits, pulses and spices.

It remained above the central bank’s target of 4% but stayed within its tolerance range of 2-6% for the fifth consecutive month.

Last week, the RBI kept the policy repo rate unchanged at 6.5% for the sixth month in a row.

Regulating interest rates is a key instrument for the central bank to control inflation. A higher interest rate regime makes borrowing more expensive, which can reduce demand among banks, other financial institutions and even consumers. Reducing the supply of money in the market can also bring down consumer spending.