Wholesale prices grew at 3.85% in February 2023, the lowest in 25 months, on the back of softening commodity prices but also, significantly, the base effect (a higher value of the wholesale price index or WPI in the year-ago period).
The latest WPI data, released by the ministry of commerce and industry on March 14, shows that wholesale inflation has been falling for nine consecutive months now. WPI growth in February 2022 was 13.4%. To be sure, the WPI index has been increasing on a month on month basis, which means that prices are not coming down in absolute terms. On a sequential basis, the increase in February 2023 was 0.2%.
Still, the 3.85% number positively surprised analysts; the reading was slightly lower than the 4% forecast by a Bloomberg poll of economists. The latest wholesale inflation value is 0.88 percentage points lower than the January value, and the lowest since January 2021, indicating the slower rate of rise in prices.
The moderation in February was largely on account of a broad-based decline in the inflation rates of the three sub-categories of WPI — primary articles, fuel & power, manufactured products – when compared to January. Growth in wholesale prices of manufactured products (64% WPI share) fell to 1.94% from 2.9%, and that of primary articles (23% WPI share), to 3.28% from 3.88%. In case of fuel and power, inflation has come down to 14.82%, from 15.15% in January. The food sub-category of WPI, which includes both primary articles and manufactured food items, fell to 2.76% from 2.95%.
To be sure, there are some items in the WPI basket which show an increase in prices. Cereal inflation in the WPI basket stood at 13.95%, while wheat inflation was 18.5%. Milk inflation jumped to a 102-month high of 10.3%, Devendra Pant, chief economist, India Ratings pointed out in his note. Cereals and milk pushed retail inflation to 6.44% in February.
Analysts however, do not expect the overall WPI print to increase going forward. “We expect WPI to remain contained, as a shift in the global commodity-price cycle, falling perishable food prices and favourable base effects should continue to keep a lid on wholesale inflation in the coming months”, Rahul Bajoria, MD and chief India economist, Barclays said in a note.
As far as policy impact is concerned, it is retail inflation data which is likely to have a bigger impact than the benign WPI numbers. CPI data for February was released on March 13 and at 6.44%, it stayed above the upper limit of RBI’s tolerance band for the second consecutive month, prompting most analysts to predict yet another rate hike in the April meeting of RBI’s Monetary Policy Committee.