Wholesale inflation declines to 90-month low of -3.48% in May

Producer inflation based on the Wholesale Price Index (WPI) remained in negative territory for the second consecutive month and touched a 90-month low in May at (-)3.48 percent. Experts say the WPI deflation will help keep retail inflation at bay The RBI’s Monetary Policy Committee target is 4 per cent in the near term.

in April, The corporate price index inflation rate was (-) 0.92 percent.

A government statement: “The decrease in the inflation rate in May 2023 is mainly due to the decline in prices of mineral oils, base metals, food products, textiles, non-food items, crude oil, natural gas, chemical and chemical products” released on Wednesday said.

in the near term

The deflationary trend is expected to continue for some time. In a note, the International Public Relations Agency (ICRA) said the rate of contraction in the currency index is expected to range between 2.5 and 3.5 percent for the month of June. Despite the sequential rise in prices of most foodstuffs in early June, annual inflation in primary foodstuffs may remain moderate on the back of a higher base (+13.7 percent in June 2022).

Also read: Milk inflation remains more than twice the rate of headline inflation

“…extreme weather conditions, including El Niño, heat wave and the prevailing cyclonic storm, add uncertainty to the near-term food outlook, although their impact on the food price index (weight: 24.4 percent) tends to be lower compared to the consumer price index (45.9 percent) given the higher weighting in the last index,” said the IPA note, adding that global commodity prices have trended downward by 22 percent in the month, even with USD/INR pair It remained constant compared to May 2023.

Forecasts for the fiscal year 24

For the full year, some experts feel RPI inflation will moderate. Rajani Sinha, chief economist at Care Ratings, said commodity price index inflation is expected to remain subdued in the first half of FY24 supported by the continued decline in international commodity prices and proactive supply-side measures by the government.

“Despite some stabilization in the second half, we expect corporate price index inflation to average in the 1-2 percent range in FY24,” she said. additional Chances of severe El Niño Its impact on agricultural production and food prices poses an upward risk to PPI inflation. Movement in crude oil prices is another key to watch.

Also read: India’s deinflation process will be slow and protracted: RBI Governor Gov Shaktikanta Das

The other expectation is that deflation will further lower retail inflation. A contraction in the WPI in the April-June quarter of FY24 (as evidenced by the latest trends) will cause nominal GDP growth to come close to real GDP growth, said Paras Jasrai, senior analyst at India’s Ratings and Research Corporation. “The potential for nominal GDP growth below real GDP growth in the first quarter remains high. A contraction in the retail price index (WPI) will also help keep retail inflation close to the MPC’s target of 4 percent in the near term.

Retail inflation based on the Consumer Price Index (CPI) to 4.5 percent in May.