Wholesale Inflation at 6 Month Low of 2.05% as Food, Fuel Prices Ease

India's wholesale price index (WPI)-based inflation cooled down to a six-month low of 2.05% in March, the Ministry of Commerce and Industry said in a statement on Tuesday. The inflation improved marginally from 2.38% in February and 2.51% in January this year.

Positive rate of inflation in March is primarily due to "increase in prices of manufacture of food products, other manufacturing, food articles, electricity and manufacture of textiles," the ministry said. The month-over-month change in WPI for March stood at (-) 0.19% as compared to February.

The fall was mainly driven by a sharp cooling in the prices of primary articles like food items and raw materials, where inflation fell from 4.58% in January to just 0.76% in March, data revealed. Fuel and power prices, which had been falling for the past few months, showed signs of stabilising. After two months of deflation, this category saw a mild rise of 0.2% in March, suggesting that energy prices may be bottoming out.

However, the contrast is visible in manufactured products. Inflation in this segment—which makes up the largest chunk of the WPI basket—picked up pace, rising from 2.65% to 3.07% over the three months. This indicates that input cost pressures are building up.

Meanwhile, food prices—though still elevated—showed signs of cooling as food index inflation dropped from a high of 7.52% in January to 4.66% in March. Seasonal corrections in vegetable prices also catalysed this cooling down process. It makes up 24.38% of the index.

"The WPI-food inflation to ease further to 3.0-3.5% in April from 4.7% in March. However, higher-than-normal temperatures pose an upside risk to the food inflation trajectory in the second half of the month," says Aditi Nayar, chief economist at ICRA.

Credit rating agency ICRA also expects that the WPI inflation to ease further to 1.4-1.6% in next month due to an ongoing dip in domestic food and international commodity prices, including crude oil, as well as a favourable base.