Wholesale inflation hits 2-yr low, food prices remain high

Wholesale price index (WPI)-based inflation eased to 3.85% compared to 4.73% in January, data released by the ministry of commerce and industry showed on Tuesday. Notably, wholesale inflation remained in single digits for the fifth month in a row after 18 straight months of double-digit inflation.

Manufactured products which have the highest weightage in the WPI eased to 1.94% in February compared to 2.99% in January.

Food inflation, on the other hand, dipped marginally to 2.76% in February from 2.95% in January as fear of a looming heatwave kept cereal prices high. 

Experts also expressed concern about milk prices which registered the third consecutive jump in February to hit 10.33%.

“India’s wholesale inflation eased to a 25-month low of 3.9% in February, led by moderation in manufactured goods inflation. The low print for manufactured goods inflation (1.9%) was mainly because of deflation in textile and metals categories on an annual basis. A lower manufactured food and chemicals inflation also helped. However, a higher print for food inflation limited the downside in overall wholesale inflation," Rajani Sinha, chief economist, CareEdge Group, said.

Inflation in pulses came in at 2.59%, while for vegetables it was at (-)21.53%. Besides, inflation in oil seeds was (-)7.38% in February.

Notably, fuel and power basket inflation eased to 14.82% from 15.15% in the preceding month.

ICRA said in a note that WPI inflation is likely to dip to 2% in March as a high base and the downward trend in wholesale prices of most essential commodities in the early part of the ongoing month are likely to soften the food inflation slightly.

“Additionally, the correction in global commodity prices as well as a stronger USD/INR pair in the ongoing month augur well for the landed cost of imports in the ongoing month.On balance, we expect the WPI inflation to ease further to 2% in March 2023," ICRA added.

“WPI inflation number is not really relevant for monetary policy decisions which are guided by the CPI (consumer price index)," said Madan Sabnavis, chief economist, Bank of Baroda.

“Yet, often the MPC members do point out the contrast in WPI inflation when taking a view that the CPI may be overstating the inflation state. The difference in the indices is due to two things: the weights in the indices are different and WPI does not include services while the CPI does. Interestingly core inflation which represents non-food non-fuel inflation has been coming down to 2.1% in Feb going by WPI. In case of CPI it is sticky at 6.1%", Sabnavis added.

The deceleration in WPI is in line with the dip in retail inflation, data for which was released on Monday. Consumer Price Index-based inflation was at 6.44% in February, staying above the Reserve Bank of India’s upper tolerance level of 6% since January 2022. The central bank has projected retail inflation at 6.5% for FY23.

The Reserve Bank of India has raised interest rates by 250 basis points since May last year to try and control rising prices.

The latest rate hike of 25 basis points in February took the policy rate to 6.50%.