Inflation based on wholesale prices fell to a 2-year low of 4.73 percent in January as prices of industrial products, fuel and energy eased, even as food prices rose. This is the eighth consecutive month that the wholesale price index (WPI) inflation rate has declined.
It was 4.95 percent in December 2022 and 13.68 percent in January last year. “The decline in the inflation rate in January 2023 is mainly due to mineral oil, chemicals and chemical products, textiles, oil and natural gas, textiles and food products,” the Ministry of Trade and Industry said on Tuesday.
The decline in the rate of price growth was mainly due to a favorable benchmark effect, economists said, adding that going forward, softening commodity prices would help moderate WPI inflation further.
While inflation moderated for industrial products, food inflation rose to 2.38 percent in January from (-) 1.25 percent in December 2022.
Inflation in pulses was 2.41 percent while that of vegetables (-) 26.48 percent. Oilseed inflation was (-) 4.22 percent in January 2023. Inflation for the fuel and energy basket eased to 15.15 percent from 18.09 percent in December 2022. For manufactured products, it was 2.99 percent against 3.37 percent in December 2022.
Deloitte India Economist Rumki Majumdar said a high comparative base and falling global prices are helping to reduce output prices. “We expect production costs to remain stable in the near term. Rising food prices are keeping the inflation index higher, which is worrying. Higher food prices also contributed to higher CPI,” Majumdar said.
Bank of Baroda Chief Economist Madan Sabnavis said WPI inflation can be expected to decline further in the next two months and could end up closer to 4% by March.
India Ratings & Research chief economist Sunil Kumar Sinha said he expects wholesale inflation to cool further to 3.7 percent in February 2023 due to a high benchmark base (February 2022: 13.4 percent) and softening global commodity prices.
The slowdown in January WPI contrasts with retail inflation data released on Monday, which showed the consumer price index (CPI) or retail inflation rose to 6.52 percent in January from 5.72 percent in December 2022.
In its monetary policy review last week, the RBI raised key rates by 25 basis points to 6.50 percent, saying core inflation remained flat. CPI-based inflation hovered below the upper tolerance level of 6 percent during November-December 2022, driven by a sharp decline in vegetable prices.
Assuming an average oil price (Indian basket) of $95 per barrel, the RBI has upgraded its inflation projection for the current fiscal to 6.5 per cent in 2022-23 from the earlier forecast of 6.8 per cent. In January-March, RBI expects retail inflation to average 5.7 percent.
Barclays MD and head of EM Asia (ex-China) Rahul Bajoria said the risks of another rate hike in April rose following the retail inflation print, in which much of the rise was driven by food prices rather than core inflation.
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