The Business Bytes
New Delhi, September 17, 2024 (TBB Bureau): Wholesale inflation reached a four-month low of 1.31% in August, driven by falling prices of vegetables and fuel, despite significant increases in onion and potato prices, according to data released on Tuesday.
This marks the second consecutive month of declining wholesale price index (WPI) inflation, following a peak of 3.43% in May. In July, inflation stood at 2.04%, while August 2023 recorded a deflation of -0.46%.
The Commerce and Industry Ministry attributed the positive inflation rate in August 2024 primarily to rising prices in food articles, processed foods, textiles, and machinery. Food inflation was reported at 3.11% in August, down from 3.45% in July, largely due to a 10.01% drop in vegetable prices. However, potato and onion prices surged dramatically, with inflation at 77.96% and 65.75%, respectively.
Barclays noted that the decline in WPI inflation in August was mainly due to falling vegetable prices, though they cautioned that rising non-perishable food prices should be monitored closely.
ICRA Senior Economist Rahul Agrawal remarked that while Kharif sowing has been strong, excess rainfall this month could potentially delay harvests and affect yields, although healthy reservoir levels are expected to support upcoming Rabi crop sowing.
Agrawal also highlighted that the WPI inflation’s decline to 1.3% in August was influenced by reductions in fuel and power prices, as well as core non-food manufacturing costs, which together lowered the overall WPI by 70 basis points compared to July.
Barclays added that decreased manufacturing costs from falling energy and metal prices lessen the risk of core consumer price inflation rising. The inflation rate for manufactured products was recorded at 1.22% in August, while the fuel and power sector experienced deflation of 0.67%, contrasting with inflation of 1.72% in July.
ICRA anticipates that stable global commodity prices in September will continue to limit upward pressure on non-food WPI inflation. Additionally, the price of the Indian crude oil basket has averaged 6% lower in September compared to August, reaching its lowest level in 33 months, which is expected to help keep overall WPI inflation in check.
Looking ahead, ICRA projects WPI inflation will rise to 2% in September 2024. In related news, retail inflation for August was recorded at 3.65%, an increase from 3.60% in July, driven by higher vegetable prices.
Given the slight uptick in consumer price index (CPI) inflation, Barclays anticipates that the Reserve Bank of India (RBI) will maintain a cautious approach during its October meeting, evaluating the impact of monsoon conditions on food prices before considering any monetary easing, with potential rate cuts expected to begin in December 2024. The RBI has kept the benchmark repo rate steady at 6.5% for the ninth consecutive month.
