Declining Food Prices Keep India’s Wholesale Inflation in the Negative Zone for the Sixth Straight Month
16-10-2023 : For the sixth consecutive month, wholesale inflation in India remained in the negative zone in September, registering a figure of (-)0.26 percent. The primary factor contributing to this deflationary trend was the decline in food prices, particularly vegetables.
The wholesale price index (WPI)-based inflation rate has been in the negative territory since April, and in August, it was (-)0.52 percent. In September of the previous year, it stood at a significantly higher 10.55 percent. Analysts and experts attribute this continued deflation in year-on-year terms to the rapid reduction in food prices.
The inflation rate for food articles, which had remained in double digits for the previous two months, moderated to 3.35 percent in September. In August, it had been at 10.60 percent. Specifically, vegetable prices experienced a substantial (-)15 percent deflation in September, a sharp contrast to the 48.39 percent inflation recorded in August. Similarly, potato prices also witnessed a decrease of (-)25.24 percent in September, compared to (-)24.02 percent in the preceding month.
However, some items within the food category experienced an increase in inflation during September, such as pulses, onions, milk, and fruits. The inflation rate for pulses reached 17.69 percent, while onions saw a high inflation rate of 55.05 percent during the same month.
The fuel and power basket recorded a (-)3.35 percent inflation rate in September, an improvement from (-)6.03 percent in August. In the category of manufactured products, the inflation rate stood at (-)1.34 percent, down from (-)2.37 percent in August.
The deflation in September 2023 can be primarily attributed to declining prices in various sectors, including chemical and chemical products, mineral oils, textiles, basic metals, and food products when compared to the same month in the previous year, as stated by the commerce and industry ministry.
Rahul Bajoria, Managing Director and Head of EM Asia Economics at Barclays, emphasized that the slowing momentum in core inflation and the decline in vegetable prices are contributing to the moderation in retail inflation. However, any sequential increase in the WPI for manufactured products should be closely monitored, especially if producers decide to pass on higher costs to retail prices.
Currently, indicators suggest that the rate of increase in selling prices is slower than that in input prices. The Reserve Bank of India (RBI) is expected to remain in a prolonged pause mode as it keeps an eye on uncertainties related to commodity prices, both in terms of domestic non-perishable food prices and international energy prices.
Data released in the previous week indicated that the annual retail or consumer price inflation in India had reached 5.02 percent in September, marking a 3-month low. Earlier in the month, the RBI projected CPI inflation to be at 5.4 percent for the 2023-24 fiscal year. The central bank has maintained its key policy interest rate for four consecutive meetings in an effort to keep inflation within the target range of 2-6 percent.
