Wholesale price based inflation eased to 2-year low of 4.73% in Jan

The wholesale price-based inflation declined to 2-year low of 4.73 per cent in January on easing prices of manufactured items, fuel and power, even though food articles turned expensive.

This is the eight straight month of decline in the rate of wholesale price-index (WPI) based inflation.

It was 4.95 per cent in December 2022 and 13.68 per cent in January last year.

"Decline in the rate of inflation in January, 2023 is primarily contributed by mineral oils, chemicals & chemical products, textiles, crude petroleum & natural gas, textiles, and food products," the commerce and industry ministry said on Tuesday.

The decline in the rate of price rise was mainly due to a favourable base effect, economists said, adding that going forward, softening commodity prices would help ease WPI inflation further.

Although inflation in manufactured items softened, in the case of food articles it rose to 2.38 per cent in January, from (-) 1.25 per cent in December, 2022.

Inflation in pulses was 2.41 per cent, while in vegetables it was (-) 26.48 per cent.

Inflation in oil seeds was (-) 4.22 per cent in January, 2023.

Fuel and power basket inflation eased to 15.15 per cent, from 18.09 per cent in December 2022. In manufactured products it was 2.99 per cent, against 3.37 per cent in December, 2022.

Deloitte India, economist, Rumki Majumdar said high base effect and falling global prices are aiding in reduced manufacturing prices.

"We expect the cost of production to remain steady in the near future.

“Rising food prices are keeping the inflation index higher, which is of concern.

“Higher food prices also contributed to a higher CPI," Majumdar said.

Bank of Baroda chief economist Madan Sabnavis said WPI inflation may be expected to trend further downwards in the next two months and could end at closer to 4 per cent by March.

India Ratings & Research Chief Economist Sunil Kumar Sinha said it expects the wholesale inflation to cool off further to 3.7 per cent in February 2023 due to the high base effect (February 2022: 13.4 per cent) and softening of global commodity prices.

The deceleration in January WPI comes in contrast to the retail inflation data released on Monday which showed consumer price index (CPI) or retail inflation rose to 6.52 per cent in January, from 5.72 per cent in December, 2022.

In its monetary policy review last week, the RBI hiked policy rates by 25 basis points to 6.50 per cent saying core inflation still remains sticky.

Consumer price index-based inflation had moved below the upper tolerance level of 6 per cent during November-December 2022, driven by a strong decline in prices of vegetables.

Assuming an average crude oil price (Indian basket) of $95 per barrel, RBI bettered inflation projection for current fiscal to 6.5 per cent in 2022-23, from 6.8 per cent predicted earlier.

In the January-March quarter, the RBI expects retail inflation to average at 5.7 per cent.

Barclays, MD & head of EM Asia (ex-China) Rahul Bajoria said risks of another rate hike in April have risen after the retail inflation print, in which bulk of the upside was driven by food prices, and not by core inflation.