Economy
Mint Explainer: What makes the latest WPI inflation data worrisome even as it contracts?
Summary
- Food inflation remains a concern. Prices of onion, tomatoes, paddy, pulses and spices have continued to trend higher
India's Wholesale Price Index (WPI) inflation for August came close to breaking into positive territory at -0.52%, even as the reading marked the fifth consecutive month of contraction. The rise has been largely attributed to increases in fuel and power prices, according to the Ministry of Commerce and Industry. Mint takes a closer look at the data point and its implications.
Data comparison: A five-month high for WPI
Interestingly, at -0.52%, the August WPI inflation print marked a five-month high, according to data released by the commerce and industry ministry on Thursday. It was at -1.36% in July, -4.12% in June, -3.48% in May and -0.92% in April. A year ago, WPI inflation rate stood at 12.41%. A Reuters' poll of analysts had estimated a WPI rate of -1.36% for the month.
Factors behind slower August contraction
Though fuel and power prices declined in August, the pace was slower than in the previous month, with the contraction rate at 12.79% in July compared to -6.03% in August.
In manufactured products, inflation rate was at -2.37% in August compared to -2.51% in July.
Segments/commodities that saw price rise included food products, electrical equipment, computer, electronic and optical products, printing, motor vehicles, trailers and semi-trailers, among others, as per the data.
Food inflation remains a concern though. Prices of onion, tomatoes, paddy, pulses and spices continue to trend higher.
Projections going ahead
Economists expect WPI-based inflation to enter positive territory, due to price rise from September.
"With the support of high base fading, some uptick in WPI inflation could be seen in the second half," said Rajani Sinha, chief economist at CareEdge Ratings Ltd.
"We could expect WPI inflation to enter the positive territory next month onwards," Sinha said adding that for the full fiscal year (FY24), she expects WPI inflation to average in the range of 1-2%.
Which commodities saw price declines in August?
Some of the commodity groups that witnessed a decrease in prices are chemical and chemical products, paper and paper products, machinery and equipment, fabricated metal products, pharmaceuticals, medicinal chemical and botanical products; furniture etc. in August, 2023 as compared to July, 2023. Easing vegetable prices saw wholesale food prices fall to 5.62% in August after shooting up to 7.75% in July.
