Bhoomika Singh
India’s Wholesale Price Index (WPI)-based inflation in February 2023 fell to a 24-month low of 3.85 per cent, according to data released by the Commerce Ministry on Tuesday.
WPI inflation for February 2023 was the lowest since January 2021 when it was 2.51 per cent.
In January 2023, the WPI inflation was 4.73 per cent. Wholesale inflation in February fell mainly due to a decline in prices of crude petroleum and natural gas, non-food articles food products.
Apart from this, prices of minerals, computers, electronic and optical products, chemicals and chemical products, electrical equipment and motor vehicles also came down in February, an official statement said.
Reacting to the big breaking, the Chief Analytical Officer of Acuité Ratings & Research, Suman Chowdhury said, “WPI inflation print continues to see a steadily declining trend to 3.85 per cent YoY in Feb-23 from 4.73 per cent YoY in Jan-23, reflecting the impact of muted global demand on the prices of most commodities.
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Since Nov-22, the index has either grown nominally or contracted in sequential terms. This has been primarily due to lack of strong demand for manufactured goods and the inability to pass on higher costs in most product categories in the current environment. Had it been not for the sequential rise in prices of coal and mineral oil, the WPI inflation would have declined further.
The divergence between CPI and WPI inflation is clearly due to the food inflation factor; the food category comprises 24.4 per cent of the WPI vs 45.9 per cent of the CPI. Further, the food basket is different leading to differential inflation print i.e., while the food and beverages index in CPI has grown by 6.26 per cent in Feb-23, the food group (including a part of manufacturing products) inflation in WPI stood at only 2.76 per cent. While core WPI inflation has dropped to a new low of 2.14 per cent, core CPI inflation continues to be stuck at 6.23 per cent as of Feb-23.
The WPI inflation trajectory highlights the likelihood of a further slowdown in overall demand. However, it is not reflected in CPI inflation primarily due to two factors (i) the differential food basket in the two indices and (ii) the absence of services in WPI. In our opinion, the divergent trend between WPI and CPI may continue in the near term. RBI MPC is unlikely to give higher emphasis on the WPI trajectory while deliberating on the rate hike for Apr-23, where our forecast stands at 25 bps
