India breathes easy amidst fluctuating wholesale inflation

New Delhi: India’s wholesale inflation eased to 2.04 per cent in July, from a 16-month high of 3.4 per cent in the previous month, according to data released by the government on August 14. This happened as a favourable base in food products helped keep prices in check.

Wholesale prices were in deflation for most of last year, with the index at 1.26 per cent deflation in July 2023, but inflation in primary products was high at 8.2 per cent. Primary product inflation eased to a 13-month low of 3.1 per cent in July, a significant reduction from 8.8 per cent in the previous month.

However, sequentially, prices in July were up 0.84 per cent over the previous month, while food prices rose 2.7 per cent. Manufactured products, which contribute nearly two-thirds to the index, saw prices fall by 0.14 per cent on a sequential basis. During the year, inflation in manufactured goods was the highest in 17 months.

Food concerns persist

Despite a significant moderation in primary products inflation, food inflation across key categories witnessed a rise. Cereals inflation rose to 9 per cent in July as against 8.3 per cent in the previous month, paddy inflation rose to 11 per cent. On the other hand, pulses inflation more than doubled to 20.3 per cent from 9.6 per cent in the previous month. Potato and onion inflation remained in high double digits at 76 per cent and 88 per cent, respectively, while fruits inflation rose to 15.6 per cent from 9.9 per cent in the previous month.

The fall in the wholesale price index comes after a significant drop in the consumer price index, which settled below 4 per cent for the first time in nearly five years. Data released on August 12 showed that consumer inflation fell to 3.5 per cent as against 5.1 per cent in the previous month, as a high base helped keep inflation in check. However, sequentially, prices rose 1.4 per cent in July, while food prices rose 2.8 per cent this month.

Economists have further pushed back their estimates of interest rate cuts. The Reserve Bank of India’s Monetary Policy Committee kept the policy rate unchanged at 6.5 per cent for the ninth consecutive time in its review meeting in August. Economists believe that the possibility of interest rate cuts in October is also low. Some even believe that interest rate cuts may happen in 2025.