WPI Inflation dropped to a favorable base-driven 19.-month low of 8.39% in October.
According to government statistics, the Wholesale Price Inflation (WPI) decreased to 8.39% in October from 10.7% in September. For the 5th straight month, the retail price-based inflation for the cost of food, gasoline, and manufactured goods fell in October to 8.39%.
The WPI increased to a record level of 15.88% in May. The 18th consecutive month with double-digit WPI inflation was September. WPI uses 2011–12 as its base year and only considers changes in product prices. The WPI gives manufactured things extra weight.
What is WPI?
The Office of Policy Adviser, Ministry of Trade, publishes the data for WPI, which assesses the specific change in wholesale prices. WPI uses 2011–12 as its base year and only considers changes in product prices. The WPI gives manufactured things extra weight. Given that manufactured goods make up approximately two-thirds of the WPI basket, the decline in the inflation of these goods is crucial.
The food index rose in October while those for the “fuel & power” and “manufactured items” groupings decreased month over month. Despite this, the cost of food decreased nonetheless, from 8.08 percent to 6.48 percent, mainly to a favorable base effect.
The WPI’s all-commodity index, which had sequentially fallen in July, August, and September, increased by 1.4 percent on a month-over-month basis overall in October. The statistics ministry released its data on the more closely watched retail inflation hours before the wholesale inflation figures were made public. The government will make the October Consumer Price Index (CPI) data available at 5.30 p.m. According to a Moneycontrol poll, Price growth likely decreased from 7.41 percent in 2009 to 6.7 percent.
Policymakers will be relieved to see a decline in news article retail inflation following a significant decrease in wholesale inflation, even though the Reserve Bank of India (RBI) already has failed to achieve its inflation mandate, with average CPI inflation remaining outside the acceptable ranges of 2–6 % for three consecutive quarters.
The central bank, however, is likely to diverge considerably from the course it has set out to reduce inflation in light of the statistics, as experts anticipate another increase in the repo rate in December.
In the past six and a half months, the RBI increased the reserve ratio by an astounding 190 basis points, bringing it to 5.9 percent. From December 5 to 7, its fiscal policy committee will meet.
The commerce and sector ministry stated in a statement accompanying the release of the October WPI inflation figures: “The decline in Oct. inflation is mainly contributed by a decrease in the value of oils, basic metals, concocted steel industries, except industrial machinery; textiles; other non-metallic industrial minerals; minerals, etc.” WPI inflation has been in double digits since April 2021, with the September reading coming in at 10.79%. In October 2021, inflation was 13.83%.
The last time the WPI increased by less than 10% was in March 2021 (7.89%). According to the figures, the inflation rate for food items decreased from 11.03% in September to 8.33% in October. Oil seed inflation has been moderate at (-)5.36%, although mineral inflation was high at 3.86%. Fuel and power inflation decreased to 23.17%, while manufactured goods inflation was 4.42%. Inflation in food-related articles decreased in October from 11.03% to 8.33%.
Vegetable inflation was 17.61% in October, down from 39.66% in September. In order to combat the consistently high inflation that has stayed just above RBI’s upper tolerance range of 6% during three consecutive quarters, the interest rate was increased by 190 percentage points between May and September, reaching 5.90%.
In a note, Barclays India warned that favorable base effects and comparatively low commodity prices might significantly decrease WPI in the months to come. Although inflation has been trending downward for both wholesaling indices, it was noted that “changing risks would encourage authorities to take a guarded perspective.”
At its meeting in December, the RBI’s fiscal policy committee anticipated Barclays to announce a rate increase of 35 basis points, raising the reserve ratio to 6.25%. In a note, the Bank of Baroda (BoB) stated that wheat prices had also increased globally due to uncertainty surrounding Ukrainian exports.
“Core WPI further down to 4.7% in October from 7% in September, driven by a decline in manufactured inflation. Further, WPI is anticipated to ease further on the back of moderate global prices, “said Bob. Oil seed inflation has stayed low at (-)5.36 percent, although mineral inflation was high at 3.86 percent. Compared to September, when vegetable inflation was 39.66%, this month, it was 17.61%.
To combat persistently high inflation that has exceeded the RBI’s upper tolerance range of 6% for three consecutive quarters, interest rates were increased by 190 basis points between May and September, bringing them to 5.90%. In a note, Barclays India warned that favorable base effects and comparatively low commodity prices might significantly decrease WPI in the coming months.market risks
Although inflation has been trending downward for both wholesale and retail indices, it was noted that “changing risks would encourage regulators to take a guarded perspective.” At its meeting in December, the RBI’s fiscal policy committee anticipated Barclays to announce a rate increase of 35 basis points, raising the reserve ratio to 6.25 percent.
edited and proofread by nikita sharma