WPI inflation eases to 25-month low in Feb as manufacturing prices cool

Inflation for manufactured items eased to 1.94% in Feb from 2.99% in Jan

The wholesale price index (WPI)-based inflation rate fell to a 25 month low of 3.85 per cent in February, pulled down by a higher base and easing of pricing pressure across various goods categories.

WPI stood at 4.73 per cent in January 2023, compared to 2.51 per cent in January 2021. It is the fifth consecutive month that factory-gate inflation has seen a single-digit print after remaining in double digits for 18 months.

Data released by the ministry of commerce and industry on Tuesday showed that inflation for manufactured items eased to 1.94 per cent in February from 2.99 per cent in January. It was led by softening price pressure in sectors like manufactured food products, leather, wood, paper, chemicals and cement among others. Though, contraction in prices continued in textiles and fats.

However, food inflation excluding manufactured food items rose to 3.81 per cent in February from 2.38 per cent in January. Though price rise for wheat (18.54 per cent) and cereals (13.95 per cent) saw a marginal deceleration from January, the prices of paddy, pulses, fruits and milk underwent acceleration from their January levels.

However, vegetable prices (-21.53 per cent) saw contraction for the fourth consecutive month in February, mostly led by decline in onion prices (-40.14 per cent).

Fuel inflation eased to 14.82 per cent in February from 15.15 per cent in January. It was led by a fall in price rise for petrol (15.24 per cent) and high-speed diesel (24.61 per cent). LPG prices contracted for the fourth consecutive month (-7.12 per cent) in February.

The fall in WPI comes a day after retail inflation, while declining marginally, remained above the central bank’s upper tolerance limit of 6 per cent for a second consecutive month, leading analysts to predict another rate hike by 25 basis points by the Monetary Policy Committee (MPC) in its upcoming April meeting.

Although the RBI tracks retail inflation for its monetary policy decisions, easing wholesale price inflation may lead to expectations of a fall in retail inflation in the coming months.

Madan Sabnavis, chief economist at Bank of Baroda, said that 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.

"Interestingly core inflation which represents non-food and non-fuel inflation has been coming down to 2.1 per cent in February going by WPI. In case of CPI it has remained sticky at 6.1 per cent", he adds.

 The divergence between retail and wholesale price inflation has now increased to 259 basis points (bps) in February from a meagre 24 bps in November.

Rajani Sinha, chief economist at CARE Ratings, said that there could be two factors responsible for the divergence.

“First, WPI inflation has support from a favourable base, and second, the manufacturing segment — which contributes more than 60 per cent to the wholesale basket — continued to witness moderation in inflation. Additionally, food categories such as cereals, milk and pulses, which were the main culprits for the spike in retail inflation in January, have lower weight in the WPI basket,” she said.