WPI Inflation Hits a Two-year Low

India inflation
Composition with variety of vegetarian food ingredients.
Inflation, recorded by the Wholesale Price Index (WPI), hit a two-year low at 3.85 percent in February 2023.

Inflation, recorded by the Wholesale Price Index (WPI), hit a two-year low at 3.85 percent in February 2023. Compared to January, inflation has dropped by 88 basis points this month. Moreover, this is the ninth consecutive month of cooling in WPI inflation after a multi-decadal high of 16.63 percent in May 2022.

A fall in inflation was observed under all groups, namely, primary articles, fuel & power and manufactured products. However, a major chunk of this month’s fall comes from the manufactured products group, which holds a weight of 64.23 percent in the WPI. Inflation in this group fell from 2.99 percent in January 2023 to 1.94 percent in February – a handsome 105 basis points fall.

Within the manufactured products group, food products saw a dramatic 302 basis points fall from 3.95 percent in January 2023 to 0.93 percent in February. Textiles, which holds a weight of 4.88 percent in WPI, saw deflation worsen from 2.14 percent in January to 3.51 percent in February. This has reflected in this month’s CPI inflation of clothing and footwear that stood at 8.79 percent compared to 9.08 percent in January.

Under primary articles, the only group that did not record a fall in inflation was the food articles group. This group observed a rise in inflation from 2.38 percent in January 2023 to 3.81 percent this month. This is largely attributed to the rise in WPI inflation in milk, as well as the easing of deflation in fruits and vegetables.

Wholesale price inflation in milk saw a drastic rise of 137 basis points to 10.33 percent this month the highest recorded inflation in milk since March 2018. Inflation in milk has been rising since September 2022 when it stood at 5.55 percent. Since then, there has been a 478 basis points increase in milk inflation in the wholesale market. This is likely due to the prevalence of lumpy skin disease amongst cattle in the recent past which affected milk produce. This has had quite an impact on the retail inflation of milk recorded this month. Retail inflation of milk closed at 9.65 percent which is the highest recorded CPI milk inflation in at least five years.

Prices of fruits and vegetables in the wholesale market saw deflation ease from 15.16 percent in January 2023 to 10.05 percent in February. This fall has also impacted retail inflation of fruits and vegetables. Fruits saw a significant increase in retail inflation from 2.99 percent in January 2023 to 6.38 percent in February, which contributed to the stubborn retail inflation this month. Retail prices of vegetables, which have deflated for four months now, saw an easing of deflation to 11.61 percent from 11.70 percent in January.

Wholesale price inflation in non-food primary articles fell rather significantly this month to 0.12 percent from 4.52 percent in the month prior. Inflation in this group has been falling since November 2022 when it stood at 8 percent. However, this month has observed the largest fall of 440 basis points in inflation since the onset of a continuous fall from November.

The fuel & power group has seen inflation ease to 14.82 percent in February 2023, from 15.15 percent in January. This group has observed inflation fall every month from 50.95 percent in June 2022. This is mainly due to inflation in wholesale prices of mineral oils falling. Mineral oils, which carry a weight of 7.95 percent out of the 13.15 percent weight that fuel & power holds in WPI, include commodities such as high-speed diesel, petrol, aviation turbine fuel (ATF), and LPG.

WPI inflation in petrol fell for the second consecutive month in February 2023. Inflation in this group closed at 15.24 percent from 15.54 percent in January. High-speed diesel recorded a fall in inflation for the fifth month in a row. Inflation in this group stood at 24.61 percent this month compared to 28.47 percent in January.

Overall, the fall in wholesale price inflation this month was mainly fuelled by a fall in inflation in the manufactured products group, due to its massive weight in WPI. The commodities that have seen a rise in wholesale prices hold a rather small weight compared to this. The divergence in WPI and CPI inflation has increased by 259 basis points this month compared to just 24 basis points in November.

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The author is MD and CEO of Centre for Monitoring Indian Economy Pvt. Ltd

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