India’s wholesale inflation falls below zero

India’s wholesale price-based inflation fell below zero for the first time since July 2020 helped by a drop in prices of food articles, edible oil and energy prices, as per the government data released on Monday.

The annual rate of inflation based on the Wholesale Price Index (WPI) fell to (-) 0.92 per cent in April as against 1.34 per cent recorded in the previous month. This is the lowest level of wholesale price-based inflation in nearly three years.

“Decline in the rate of inflation in April 2023 is primarily contributed by fall in prices of basic metals, food products, mineral oils, textiles, non-food articles, chemical & chemical products, rubber & plastic products and paper & paper products,” the Ministry of Commerce & Industry said in a statement.

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This is the 11th straight month of decline in WPI inflation. The wholesale price-based inflation has declined sharply after hitting a 20-year high of 16.63 per cent in May last year.

A high base and mixed trends in wholesale food prices in early-May 2023 are likely to soften the year-on-year food inflation, even as the near-term outlook is clouded by the possibility of a potential heatwave and potential development of El Nino conditions, rating agency ICRA said in a note.

ICRA expects the WPI to record a deeper deflation of 2.2 per cent in May 2023 due to a high base.

Edible oils became cheaper by 25.91 per cent in April when compared with the wholesale prices during the same month last year. Prices of manufactured products declined by 2.42 per cent.

Primary articles' inflation declined to 1.60 per cent in April from 2.40 per cent in the previous month. Fuel and power inflation eased to 0.93 per cent in April from 8.96 per cent recorded in March 2023.

The year-over-year inflation based on WPI Food Index declined from 2.32 per cent in March 2023 to 0.17 per cent in April 2023.

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“The fall in WPI is likely to have a positive impact on retail prices as well in terms of cooling them down as can be seen in the recent CPI figures,” said Raghvendra Nath, managing director of Ladderup Wealth Management.

Consumer price index-based retail inflation declined to an 18-month low of 4.7 per cent in April from 5.66 per cent in the previous month, as per the government data released last week.

The decline in both retail, as well as wholesale price-based inflation, would enable the RBI to keep policy rates unchanged in its review scheduled in the first week of June.
“A lower reading on both CPI and PPI will support RBI’s stance to keep rates on hold,” said Mohit Ralhan, Chief Executive Officer of TIW Capital.

The year-on-year deflation in manufactured non-food products or core WPI widened to a 41-month low of 1.8 per cent in April 2023. Global commodity prices are 20 per cent lower on a YoY basis on account of the elevated prices that prevailed following the Russia-Ukraine conflict and the subsequent sanctions imposed against Russia in May 2022.

Prices of coal declined by 0.22 per cent; electricity by 2.20 per cent and mineral oils by 3.33 per cent in April when compared with the previous month.