Wholesale price index (WPI)-based inflation is likely to move to positive territory by next month after remaining in deflation for seven consecutive months. Experts believe the uptick in prices of several food items like pulses and onions as well as the base effect would push wholesale inflation into positive territory.
This will also mean that retail inflation may not register a sharp decline in coming months and is expected to remain at about 5%.
According to official data released on Tuesday, WPI inflation was at -0.52% in October from 8.67% a year ago. It was at -0.26% in September 2023. WPI inflation rate has been in the negative zone since April.
Aditi Nayar, Chief Economist, Head–Research & Outreach, ICRA, said, “Looking ahead, while global commodity prices, including crude oil continued to soften in the ongoing month, the uptrend in domestic prices of most food items as well as an unfavourable base is projected to lead to a turnaround in the WPI to a marginal 0.1% inflation in November 2023 (+6.1% in November 2022), after a gap of seven months.”
ICRA estimates the WPI inflation prints to remain below 3% in the remaining months of FY2024, amid expectations that commodity prices will remain at benign levels unless global demand outlook strengthens significantly.
“Sequentially there was some uptick partly due to higher food prices led by cereals, vegetables and protein items. The deflationary trend in WPI could end in the coming months with the support of favourable base fading away gradually and expectation of subdued commodity prices amid global demand weakness,” said Rajani Sinha, Chief Economist, CareEdge, adding that for the full year, the agency expects WPI inflation to average below 1%.
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The data revealed that on a month on month basis, there was a 0.4% in the WPI index for all commodities in October.
Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research noted that wholesale food inflation stood at 1.33% MoM and carry upside risks, given the continuing inflation in cereals, pulses and onions.
“We expect WPI inflation to be in positive territory over the next few months, given healthy industrial and consumer demand amidst the backdrop of steady food inflation. This is set to be hold CPI inflation in the range of 5.0%-5.5% over the next two quarters. RBI MPC is likely to wait till the middle of next year before taking a decision on any reversal of the current monetary policy,” he further said.
WPI inflation in food articles was at 2.53% in October as against 3.35% in September. This was largely on the basis of a lower vegetable inflation which was at a -21.04% in October as against -15% in September.
However, wholesale inflation in pulses touched 19.53% in October from 17.69% in September, while for paddy it was at 9.39% last month (8.97% in September). WPI inflation in cereals also rose to 7.51% in October (7.28% in September) while it zoomed up to 62.6% in onions (55.05% in September).
“The key concern remains around rising prices of cereals and pulses prices, both of which continue to see high rates of inflation. There is also likely to be ongoing pressure on perishable prices from rising onion prices, which have spiked in recent weeks on account of supply disruptions,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.
