India’s wholesale inflation rises to 2.38% in February

New Delhi: India’s inflation based on wholesale prices rose to 2.38% in February, up from 2.31% in the previous month, show the Union commerce ministry’s provisional data released on Monday.

The rise in wholesale price index-based inflation in February was led by a slower pace of contraction in fuel and power inflation and a pick-up in the prices of manufactured products.

The latest wholesale inflation, a proxy for producer prices, was marginally higher than the 2.36% projected by economists in a Reuters poll.

Food prices decline

Food prices, a major contributor to the index, increased by 5.94% annually in February, but eased from December’s 8.85% rise and January’s 7.47%.

In February, cereal prices rose 6.77% annually, but was down from the 7.33% growth reported in January. Vegetable prices fell 5.80% during February after an 8.35% surge the previous month, but prices of onions and fruits rose during the month.

Food prices have remained elevated for over a year, primarily during November 2023-June 2024, due to uneven and below-normal monsoon rains.

"Food inflation softened, largely helped by broad-based slowdown. The vegetable inflation index eased the most, followed by food-grain inflation, and inflation of protein-based items (milk, eggs meat and fish). Among vegetables, tomato and potato prices registered a decline, while that of onions are showing some build-up,” said Sonal Badhan, economist at the Bank of Baroda.

“Going forward, as trade war deepens further and uncertainty around Fed (US Federal Reserve) rate cut looms, volatility in market is expected to remain. Commodity prices are seeing some build-up in pressure as demand rose ahead of tariff implementation dates,” she added.

Also read | Inflation vs Growth: What’s bothering US consumers the most ahead of US Fed policy meeting?

Beyond food prices

Manufactured product prices, which make up around 64% of the wholesale price index, rose by 2.86% annually in February, up from 2.51% in January and 2.14% in December.

Fuel and power prices fell 0.71% year-on-year against a 2.57% and 2.78% decline in December and January, respectively.

“The uptick was predominantly on account of non-food items, whereas the WPI-food inflation eased to a six-month low of 5.9% from 7.5% in the previous month, led by a broad-based cooling across most primary food articles, including a sharp correction in vegetables,” said Rahul Agrawal, senior economist, ICRA Ltd.

“The downward pressure on the headline print on account of the dip in food inflation was offset by the narrowing deflation in the fuel and power segment, and an uptick in the core (non-food manufacturing) WPI inflation to a 24-month high of 1.3%,” he added.

Prices of non-food articles rose 4.84% annually in February, up from 2.95% year-on-year growth reported in January.

Prices of primary articles—which include food articles, non-food articles, minerals, and crude petroleum and natural gas—rose 2.81% in February, against January’s 4.69% rise.

Taming inflation

Retail inflation, based on the consumer price index (CPI), was at 3.61% in February, down from 4.26% in January, according to official data released last week.

To be sure, last month, the Reserve Bank of India’s Monetary Policy Committee (MPC) reset its repo rate to 6.25%, the first such easing since the 2020 covid outbreak.

Regulating interest rates is key for the central bank to control inflation.

A higher interest rate regime makes borrowing costs more expensive, reducing demand among banks, financial institutions, and the general public, which, in turn, can bring down consumer spending and inflation.

RBI’s medium-term target for CPI inflation is 4% within a band of plus or minus 2%.

Also read | Inflation: In RBI’s control at last?