Wholesale price-based inflation rate declined by 3.48 per cent in May on the back of a high base effect, easing global commodity prices, food, fuel, primarily articles and manufactured items, said economists. “The contraction was more than our expectation because of sharper deflation in fuel and light category owing to a broad-based decline in mineral oil prices. Within manufactured products, basic metals, chemicals, textiles and plastic products prices continued to ease, aided by overall decline in the global commodity prices,” said Rajani Sinha, Chief Economist, CareEdge Ratings.

Data released by the Ministry of Commerce and Industry showed that the WPI inflation rate fell to a seven-and-half year low.  This is the second consecutive month of WPI in the negative territory of the deflationary zone, strengthening expectations of a similar impact on the retail inflation with a lag resulting in the Reserve Bank of India (RBI) to maintain its rate pause stance, it said. In May 2022, the WPI inflation was at 16.63 per cent. 

“Although the moderation was broad-based across major sub-groups, energy-related items accounted for bulk of the 256 bps easing in the headline WPI print in May 2023 vis-a-vis April 2023. Notably, the YoY deflation in industrial raw materials widened sharply in May 2023, which should augur well for the margins of India Inc,” said Aditi Nayar, Chief Economist, Head – Research & Outreach, ICRA. She further added that the WPI deflation is likely to print at 2.5-3.5 per cent in June 2023 supported by an elevated base in the year-ago month (+16.2 per cent). Also, WPI inflation, according to CareEdge Ratings, is expected to remain subdued in the first half of FY24 supported by consistent fall in international commodity prices and proactive supply side measures by the government. “Despite some firming in the second half, we expect WPI inflation to average in 1-2 per cent range in FY24,” said Rajani Sinha. 

The negative trend in the wholesale prices should reflect in retail inflation after a lag. “Drop in wholesale prices by 3.48 per cent for May 2023 is a pointer towards decline in the retail inflation in the coming months, once the bulk or mandi rates start reflecting in the CPI after a lag,” said Deepak Sood, Secretary General, ASSOCHAM. He also stated that the negative trajectory in wholesale prices might also help the overall input cost in the value chain while maintaining that monsoon will play a key role in the same as food prices are influenced a lot more by rains than manufactured goods. Besides, the movement in crude oil prices will be the other key monitorable.

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