India’s wholesale prices enter a seventh consecutive month of deflation

In the month of October 2023, India’s Wholesale Price Index (WPI) inflation was recorded at (-)0.52% YoY, marking a seventh consecutive month in negative territory.

In October 2022, WPI stood at 8.67% YoY.

The WPI declined from the previous month’s reading of (-)0.26% YoY and was below market forecasts of (-)0.20% YoY as published by Investing.com.

October’s WPI dipped below (-)0.46% which was registered in August 2023.

After four consecutive months of negative but rising WPI, the October data has registered a decline, pushing further into the deflationary zone.   

Principally, the decline in the WPI was led by falling prices in chemicals and chemical products (-6.84% YoY), textiles (-5.47% YoY), basic metals (-2.73% YoY), food products (-1.65% YoY), and paper and paper products (-9.10% YoY).

Initially, wholesale inflation was expected to continue its march toward positive territory given the rising crude prices in October 2023 and expected difficulties with the Kharif harvest amid weather-related uncertainties.

However, both WTI and Brent having peaked above $90 per barrel in the middle of the month, began to ease, which also appears to have weighed on WPI.

At the time of writing, WTI is trading at $78.43 per barrel, while Brent is placed at $82.70 per barrel.

Index breakdown

As per the Office of the Economic Advisor, inflation in Primary Articles moderated to 1.82% YoY as against 3.70% YoY in the previous month and was down sharply from 6.73% in August 2023.

In the Fuel and Power category, deflation continued at (-)2.47% for October 2023, easing from (-)3.35% YoY and (-)6.34% YoY in September and August, respectively.

This marked the sixth month of deflation in the category, with LPG and HSD slowing by (-)4.03% YoY and (-)6.79% YoY, respectively; while petrol prices accelerated by 3.45% YoY from 1.24% YoY in September 2023.

Manufactured Products, which account for 64.23% of the index, also remained in deflationary territory registering a decline of (-)1.13% YoY for the month, as against (-)1.34% YoY and (-)2.30% YoY in September and August, respectively.

This marked the eighth consecutive month of deflation in manufacturing.

The food index, which accounts for 24.38% of the index, witnessed positive inflation but continued to soften to 1.07% YoY for October 2023, significantly lower than the 6.19% YoY recorded in August 2023.

The Food Index consists of Food Articles from the Primary Articles category, and Food Products from Manufactured Products, and witnessed the softest increase since a decline in the month of June 2023 owing to relatively subdued vegetable prices after severe disruption earlier in the year.

Monthly changes in categories

On a monthly basis, the headline WPI increased by 0.40%, while Primary Articles, Fuel and Power, and the Food Index were each up by 1.15%, 0.65%, and 1.01%, respectively.

Manufactured Products witnessed a 0.0% MoM growth in prices.

The headline WPI for the month as well as inflation in Primary Articles and the Food Index turned positive after experiencing deflation in September 2023 of (-)0.66%, (-)4.15%, and (-)4.97%, respectively.

Monthly changes in components

Primary Articles saw inflation in minerals and Food Articles of 7.81% MoM and 1.33% MoM, respectively.

However, the increase was capped by deflation in Crude Petroleum and Natural Gas of (-)0.60% MoM.

Fuel and Power, which amounts to 13.15% of the index weight, saw an inflation in mineral oils of 1.28% MoM but was counterbalanced by the decline in Electricity prices to the tune of (-)0.73% MoM.

Manufactured Products which experienced zero inflation during the month, saw an increase in month-over-month prices for 13 out of 22 groups of products, including Food Products, Chemicals and Chemical Products, and Motor Vehicles.

7 groups registered a decline including the Manufacture of Basic Metals, Fabricated Metal Products, and Rubber and Plastic Equipment as compared to September 2023; while 2 of the 22 groups remained unchanged.

WPI outlook

Following weak China demand, emerging rural distress, and slowing global commodity prices amid fears of a crisis in US financial markets, the WPI is expected to remain at benign levels for the rest of the year.

As per analysts at TradingEconomics.com, the fuel component, manufacturing segment, and food index are estimated to end the quarter at 2.0% YoY, 1.3% YoY, and 3.8% YoY, respectively.

CPI and IIP data

The WPI release comes a day after the Consumer Price Index (CPI) and Index of Industrial Production (IIP), which dipped to a five-month low of 4.9% YoY and 5.8% YoY, respectively.

In retail inflation data, the core component (non-food, non-energy), slowed to 4.4% YoY while food inflation remained north of 6.0% YoY even as cereals, pulses, and spices continued to see heavy inflationary pressures.

Way forward

The Reserve Bank of India (RBI) has maintained the status quo on interest rates during the previous four meetings and is likely to keep to its hawkish stance while the CPI continues to track closer to the 4% inflation target, and the WPI remains in negative territory.

However, economists shall closely monitor food prices, since agricultural outputs are vulnerable to sudden market swings, and their outsized role in headline CPI could threaten a reversal in the declining inflation trend.

At the same time, efforts to bring down inflation have likely been supported by the reduction in global oil prices, although tensions in the Middle East mean that the government will be watchful for any indications of a price turnaround.

Later today, global markets will also closely track US consumer inflation data.

Market forecasts published by Investing.com suggest a moderation from 3.7% YoY to 3.3% YoY, while core inflation is expected to remain unchanged at 4.1% YoY.