India’s Wholesale Price Inflation Hits Four-Month High in October

India's wholesale price inflation, as measured by the Wholesale Price Index (WPI), rose to 2.36% in October 2024, the highest in the past four months. This increase was driven mainly by a rise in food prices, according to provisional data released by the Ministry of Commerce and Industry. Economists had expected the rise to be around 2.2%, compared to 1.84% in September.

What is the Wholesale Price Index (WPI)?

The Wholesale Price Index (WPI) measures the price changes in goods at the wholesale level, before they reach consumers. It reflects the prices at which producers sell their goods in the market and is an important indicator of inflationary pressures in the economy. A rising WPI often signals increasing costs for producers, which can eventually lead to higher prices for consumers.

Key Reasons for the Rise in WPI Inflation

A major factor pushing up the WPI inflation is food price inflation, which saw a significant annual increase of 11.59% in October. This was much higher than the 9.47% rise seen in September and the 3.21% rise in August. The sharp increase in food prices contributed 63 basis points to the overall WPI rise between September and October.

• Vegetable prices surged by 63.04% year-on-year.
• Fruit prices increased by 13.55% compared to the same month last year.
• Cereal prices rose by 7.9% in October, although slightly lower than the 8.1% increase in September.

Non-Food and Fuel Prices

• Non-food articles such as textiles and chemicals saw a mild 1.71% decrease in prices, compared to a 1.64% drop in September.
• Fuel and power prices fell by 5.79% annually in October, an improvement from the 4.05% decline in September.
• Crude petroleum and natural gas prices fell by 12.16% year-on-year, slightly less than the 13.04% decline seen in the previous month.
• Prices for manufactured goods rose by 1.5% in October, higher than the 1% increase recorded in September.

Future Outlook for WPI Inflation

Economists are concerned about the potential for further rises in the WPI, as inflation remains vulnerable to fluctuations in global commodity prices and crude oil prices, as well as domestic food prices. Despite this, food inflation is expected to ease in the coming months, thanks to a good monsoon season and a better rabi crop (the winter harvest). This could help stabilize food prices, reducing inflationary pressures in the first quarter of 2025. According to Suman Chowdhury, Chief Economist at Acuite Ratings & Research, the good monsoon and the expected rabi harvest could help bring food inflation down, which should keep the WPI inflation under control at around 3% for the fiscal year. However, retail inflation, which affects consumers directly, remains high at 6.21% for October, driven largely by food costs. Retail inflation has averaged around 5% over the past 12 months, with food prices continuing to be a major concern due to weather disruptions that have affected the prices of key items like vegetables, cereals, and fruits.

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What Does This Mean for the Reserve Bank of India (RBI)?

The high food inflation could delay a potential rate cut by the Reserve Bank of India (RBI). While economists had hoped for a rate cut in December 2024, the persistent food inflation suggests that the central bank may hold off on lowering rates until the March 2025 quarter.

Also read: India's Retail Inflation Rises to 6.21% in October 2024, Hitting 14-Month High The RBI has not reduced the repo rate (the interest rate at which it lends to commercial banks) since February 2023, and its stance on monetary policy will likely remain cautious until inflation pressures ease.