Wholesale inflation cools to four-month low in August as food and fuel prices ease

New Delhi: India's wholesale inflation cooled to a four-month low of 1.31% in August due to the softening of food, fuel and power prices.

The wholesale price index (WPI) based inflation stood at 2.04% in July, according to provisional data released by the commerce and industry ministry on Tuesday. A Reuterspoll of economists had expected the wholesale inflation around 1.85% in August.

WPI, a proxy for producers' prices, has been positive since November 2023. A year ago, it stood at -0.50%.

Food inflation, a major contributor to the index, fell to 3.26% in August, down from 3.55% in July. It had climbed to 8.68% in June from 7.75% in May.

On a sequential basis, while the wholesale prices of cereals, paddy, pulses, vegetables, onion, milk, eggs, fish and meat fell in August, prices of wheat, potato, and fruits rose during the month.

Prices of non-food articles declined to 2.08% in August, compared to a 2.90% fall reported in July.

Fuel and power prices fell 0.67% in August, compared to a 1.72% rise in July. Crude petroleum and natural gas prices rose by 1.77% in August, compared to 9.12% in July.

Manufactured products' prices rose to 1.22% in August, against 1.58% in the previous month.

Will WPI ease further?

According to experts, the WPI is expected to ease further in the coming months due to the softening of global commodity prices and better-than-expected monsoons.

"The core WPI inflation dipped to 0.7% in August 2024 from 1.2% in July 2024, amidst a continued softening in global commodity prices," said Rahul Agrawal, senior economist at rating agency Icra Ltd.

Also Read | August inflation: What CPI data tells us beyond the base effect, in charts

"Global commodity prices have remained benign through September 2024 so far… likely to contain the sequential momentum in the non-food WPI. Additionally, the price of the Indian basket of crude oil has averaged 6.0% lower in September 2024 on a sequential basis, while touching the lowest levels in 33 months. This would also help contain the uptick in the headline WPI inflation print in the month," Agarwal added.

The outlook

Interestingly, India’s retail inflation remained below 4% for a second successive month in August, sparking tempered expectations of a rate cut amid a coalescence of other favourable factors. Food prices, however, continue to remain a worry.

Retail inflation in August inched a tad up to 3.65% from July’s 3.6%, chiefly due to stubborn food prices, according to data from the Ministry of Statistics and Programme Implementation (MoSPI) released last week.

It has, however, stayed within the Reserve Bank of India’s medium-term target of 4% (within a band of plus or minus 2 percentage points).

Also Read: Will a surprise uptick in August inflation put RBI rate cut timeline in limbo?

At 3.65%, the latest retail inflation data is also the second lowest in 12 months, the lowest being in July.

Retail food inflation in August was 5.66%, higher than the 5.42% rise reported for July—the lowest since June 2023, when food inflation was 4.55%. Food inflation had risen 9.36% in June, 8.69% in May, and 8.70% in April.

Retail food prices have remained elevated for over a year primarily due to last year’s uneven and below-normal monsoon rains.

In August, the retail prices of cereals, meat, fish, milk products, pulses, sugar and confectionery fell sequentially, while prices of eggs, fruits, and vegetables rose during the month.

Retail inflation has been below the 6% mark since September 2023, remaining within the Reserve Bank of India's 2-6% tolerance range for 11 consecutive months.

Core inflation—goods and services excluding the more volatile food and energy prices—makes up nearly 50% of the basket.

"Core inflation (WPI) eased down to 0.7% (3-month low) in Aug’24 from 1.2% in Jul’24. Inflation in manufactured products moderated to 1.2% from 1.6% in Jul’24. Out of the 22 sub-indices, moderation was visible in 13 categories," said Jahnavi Prabhakar, Economist at the Bank of Baroda.

"Internationally, average oil prices have dropped down by 7.3% in Aug’24 after increasing by 4.6% in Jul’24. So far, the oil prices have fallen by (-) 8% in Sep’24 (1-16 Sep) amidst lower-than-expected demand from China (one of the largest crude importers). The focus will also shift towards the upcoming Fed rate cut which can potentially boost demand in the coming months," Prabhakar added.