Wholesale inflation eases to a four-month low of 0.2% in February

The headline wholesale price index (WPI)-based inflation eased to 0.2 per cent in February from 0.27 per cent in the preceding month, remaining in positive territory for the fourth consecutive month.

The data released by the Ministry of Commerce and Industry on Thursday showed that lower WPI inflation in February was driven by a deceleration in price rises for fuel and manufactured products, even though food inflation accelerated to 6.95 per cent.

Within food articles, pressure on factory gate prices built up on account of accelerations in the prices of cereals (6.63 per cent), vegetables (19.78 per cent), and milk (5.46 per cent).

Within cereals, wheat (2.34 per cent) and pulses (18.48 per cent) remain causes for concern.

Within vegetables, onion inflation (29.22 per cent) appeared to be sticky, while that of potatoes (15.34 per cent) shot up.

Meanwhile, the prices of fruit (minus 3.99 per cent) and protein-rich items like eggs and meat (minus 0.47 per cent) provided some relief.

The prices of manufactured products, which have a weighting of 64.2 per cent in the index, remained in deflation (minus 1.27 per cent) for the twelfth consecutive month in February, led by a continuing contraction in the prices of manufactured food products (minus 1.11 per cent), vegetable and animal oil (minus 13.32 per cent), textiles (minus 1.9 per cent), paper (minus 6.42 per cent), chemicals (minus 5.18 per cent), metals (minus 5.72 per cent), rubber (minus 1.09 per cent), and steel (minus 6.49 per cent).

Moreover, the contraction in fuel prices (minus 1.59 per cent) continued for the tenth consecutive month, led by the contraction in prices of high-speed diesel (minus 6.37 per cent) and petrol (minus 0.69 per cent). The prices of cooking gas (3.83 per cent) accelerated during the month.

Rajani Sinha, chief economist at CARE Ratings, says that an uptick in wholesale food inflation led the overall print higher, and a correction in global commodity and energy prices has aided in the moderation of WPI inflation in fuel, power, and manufactured products.

“(However) in the coming financial year (2024-25), waning El Niño conditions and a strong recovery in rabi sowing bode well for agricultural production and thereby food inflation. Global commodity prices are anticipated to remain relatively muted given the slow growth in China. Nonetheless, geopolitical tensions in West Asia remain significant variables to monitor closely,” she added.

This slight moderation in factory gate inflation comes days after high food prices also kept retail inflation elevated in February at 5.09 per cent.

Although the Reserve Bank of India tracks retail inflation for its monetary policy, the elevated WPI would end up keeping the consumer price index sticky.

“On the whole, the WPI would end up with a deflation rate of 0.7 per cent in 2023-24. With the base effect turning low from April 2024 onwards, the WPI inflation is expected to pick up somewhat to around 0.5 per cent,” says India Ratings & Research principal economist Sunil K Sinha.