Experts see WPI inflation rising in second half this fiscal

PTI, Oct 16, 2023, 7:17 PM IST

Kolkata: The Wholesale Price Index (WPI) in India is likely to rise in the second half of the ongoing fiscal and a prolonged deflationary trend could impact growth, experts said on Monday.

Wholesale inflation remained in the negative territory for the sixth straight month in September at (-) 0.26 per cent on easing prices of food items, especially vegetables.

Deflation in WPI in September is primarily due to the fall in prices of chemicals and chemical products, mineral oils, textiles, basic metals, and food products as compared to the year-ago period, the commerce and industry ministry said on Monday.

“In September, the WPI exhibited its sixth consecutive month of contraction, with a decline of 0.3 per cent year-on-year (y-o-y), lower than the previous month’s contraction of 0.5 per cent,” CareEdge Chief Economist Rajani Sinha said.

“The continued contraction in WPI can be attributed to the deceleration in food prices, as well as the ongoing decline in fuel and manufactured product prices,” Sinha said.

She suggested that while the fading impact of a high base may lead to a “slight increase” in WPI in the second half of the fiscal year, the overall WPI inflation is expected to remain low.

Elevated global crude oil prices and potential risks to kharif harvest due to uneven rainfall also pose upside risks to WPI inflation, Sinha said.

Abhirup Sarkar, an economist and professor at the Indian Institute of Statistics, told PTI that while the decrease in fuel prices is positive news, geopolitical conflicts in Russia and the Middle East could lead to an increase in international oil prices, affecting wholesale price inflation in India.

He said although wholesale food prices have seen a decline, it may take time for this to be reflected in retail prices, as it depends on traders and their ability to pass on the price reduction to consumers.

Sarkar cautioned that prolonged deflation in WPI can have a negative impact on the economy, indicating lack of demand and potentially slowing down growth.

The WPI-based inflation rate has been in the negative zone since April and was (-) 0.52 per cent in August.

In September last year, it was 10.55 per cent. Inflation in food articles eased to 3.35 per cent in September, after remaining in double digits in the previous two months. It was 10.60 per cent in August.

“Deflation in September 2023 is primarily due to fall in prices of chemical and chemical products, mineral oils, textiles, basic metals and food products as compared to the corresponding month of the previous year,” the commerce and industry ministry said on Monday.

Fuel and power basket inflation was at (-) 3.35 per cent in September, against (-)6.03 per cent in August. In manufactured products, inflation rate was (-) 1.34 per cent, as against (-) 2.37 per cent in August.

Data released last week showed that the annual retail, or consumer price inflation, was at 5.02 per cent in September, which was a three-month low.