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Wholesale inflation hits 4-month low at 1.31pc in August

Wholesale inflation fell to 1.31% in August, a 4-month low, due to lower vegetable and fuel prices, despite spikes in onion and potato costs. This marks a second consecutive monthly decline after May's high of 3.43%.

News Arena Network - New Delhi - UPDATED: September 17, 2024, 06:12 PM - 2 min read

Wholesale inflation hits 4-month low at 1.31pc in August

Inflation in potatoes and onions continued to be high at 77.96 per cent and 65.75 per cent, respectively, in August.

Wholesale inflation in India fell to a four-month low of 1.31% in August, as prices of vegetables and fuel declined, despite significant spikes in onion and potato prices.

The latest data from the Commerce and Industry Ministry shows that wholesale price index (WPI) inflation dropped for the second consecutive month, down from 2.04% in July and 3.43% in May. A year ago, WPI inflation was at -0.46%.

The decline in August's inflation rate was primarily driven by decreases in the prices of vegetables, which fell by 10.01%.

However, inflation in food items remained high, with potatoes and onions experiencing sharp price increases of 77.96% and 65.75%, respectively. Inflation in food articles overall was 3.11% in August, down from 3.45% in July.

The Commerce and Industry Ministry attributed the positive inflation rate in August to increased prices in several categories, including food articles, processed food products, textiles, and machinery and equipment.

Despite this, deflation in the fuel and power category, which fell by 0.67% compared to an inflation rate of 1.72% in July, contributed to the overall decrease in WPI inflation.

Barclays noted that the August WPI slowdown was due to a sequential decline in vegetable prices, while ICRA Senior Economist Rahul Agrawal highlighted that while Kharif sowing has been strong, excess rainfall could impact harvests and affect yields.

Agrawal also pointed out that the drop in global commodity prices, including a 6% decrease in the Indian crude oil basket, is expected to help limit further increases in WPI inflation.

ICRA anticipates that WPI inflation will rise to 2% in September from 1.31% in August. In contrast, retail inflation increased to 3.65% in August, driven by higher vegetable prices, compared to 3.60% in July.

Given the slight uptick in retail inflation, Barclays expects the Reserve Bank of India (RBI) to maintain a cautious approach at its October meeting, assessing the impact of the monsoon on food prices before considering any monetary easing.

Barclays predicts that rate cuts may begin in December 2024. The RBI, which uses retail inflation as a key policy indicator, kept the repo rate unchanged at 6.5% in August for the ninth consecutive time.