New Delhi, NFAPost: Wholesale inflation fell to a 4-month low of 1.31% in August due to a decline in prices of vegetables and fuel, even though onion and potato prices spiked, according to official data released on Tuesday.
Wholesale price index-based inflation fell for the second straight month in August after it hit a high of 3.43% in May. Inflation in July was 2.04%. In August last year, WPI inflation was (-) 0.46%.
“Positive rate of inflation in August 2024 is primarily due to an increase in prices of food articles, processed food products, other manufacturing, manufacture of textiles and manufacture of machinery & equipment etc,” the Commerce and Industry Ministry said in a statement.
Inflation in food items was 3.11% in August against 3.45% in July. This was led by declining prices of vegetables, which dropped 10.01 per cent in August.
Inflation in potatoes and onions continued to be high at 77.96% and 65.75%, respectively, in August.
Barclays in a note said the slowing in August WPI was driven by a sequential decline in food (vegetable) prices. The continued climb in non-perishable food prices needs to be watched.
ICRA Senior Economist Rahul Agrawal said while Kharif sowing has been healthy so far, the surplus rainfall in the ongoing month can potentially delay the Kharif harvesting and/or impact such yields, even as reasonably healthy reservoir storage at pan-India level is likely to boost the sowing of rabi crops.
“The WPI inflation eased to a four-month low of 1.3% in August 2024, with the fuel and power, core (non-food manufacturing), and crude petroleum and natural gas sub-groups together pulling down the headline WPI print by as much as 70 bps in the month vis-à-vis July 2024,” said ICRA Senior Economist Rahul Agrawal.
Barclays said lower manufactured costs owing to the fall in energy and metal prices reduce the risk of spillover to core consumer price inflation. Inflation in manufactured products was 1.22% in August.
The fuel and power category witnessed deflation of 0.67% in August against inflation of 1.72% in July. ICRA said global commodity prices have remained benign through September 2024 so far, which is likely to contain the sequential momentum in the non-food WPI.
Additionally, the price of the Indian basket of crude oil has averaged 6% lower in September 2024 on a sequential basis, while touching the lowest levels in 33 months, which would also help contain the uptick in the headline WPI inflation print in the month.
Overall, ICRA expects the WPI inflation to rise to 2% in September 2024 from 1.3% in August. Data released last week showed retail inflation was at 3.65% in August on higher prices of vegetables. This was higher than 3.60% in July.
“Given the slight acceleration in the August CPI inflation, we think the RBI is likely to remain on a cautious hold at the October meeting and assess the impact of the monsoon on food prices, before considering monetary easing. We expect rate cuts to begin in December 2024,” Barclays said.
The Reserve Bank of India (RBI), which mainly takes into account retail inflation while framing monetary policy, kept the benchmark interest rate or repo rate unchanged for the ninth consecutive time in August at 6.5%.
