WPI inflation eases to 6-month low in Sept but remains in double digits

Hardening global commodity prices spill over to domestic market

The wholesale price index (Wpi)based inflation rate eased to a six-month low of 10.66 per cent in September, from 11.39 per cent in the previous month, but has remained in double digits for the first six months of the current financial year (FY22). The deceleration was caused by a fall in food prices for the second month in a row.

However, certain metals saw a rise in inflation while fuel saw moderation in the rate of price rise owing to the base effect even as the pace was still elevated at more than 20 per cent in September as global commodity prices hardened.

Experts caution that the inflation rate may average double digits in FY22, but did not expect the Reserve Bank of India’s monetary policy committee (MPC) to raise the policy rate unless demand side factors push up the rate of price rise. In any case, MPC generally takes into account the retail price inflation rate.

The softening of the WPI inflation rate was in line with the consumer price index (CPI) rate, which fell to a fivemonth low of 4.35 per cent in September, from 5.59 per cent in the previous month.

Food items continued to witness deflation, with the pace of the price fall sharpening to 4.69 per cent from 1.29 per cent a month ago.

The deflation was dominated by vegetable prices which fell for the tenth month in a row, with the rate of deceleration increasing to 32.45 per cent in September, from 13.30 per cent in the previous month.

Within vegetables, potato prices fell 48.95 per cent against 39.81 per cent. Onion prices, too, fell 1.91 per cent against a rise during the month prior.

Protein items such as egg, meat, fish and pulses saw the inflation rate inching up. In the case of non-vegetarian items, inflation crawled up to 5.18 per cent from 3.46 per cent, while pulses saw it moderately rising to 9.42 per cent from 9.41 per cent over the period under review.

Non-food primary articles (unprocessed ones), on the other hand, saw the inflation rate hardening to 29.4 per cent from 28.76 per cent, with all the sub-category of minerals, oilseeds, crude petroleum and natural gas showing an increase in the rate of price rise.

Inflation in fuel and power declined to 24.81 per cent from 26.09 per cent. Within this category, petrol and diesel prices moderated even as they remained elevated at 54.85 per cent and 51.80 per cent, respectively, in September.

“The sequential decline in the WPI inflation in September benefitted from primary food items slipping into a deeper deflation of 4.7 per cent (eightmonth low), with a sharp decline in vegetable prices, and a base-effect led easing in the inflation for fuel and power,” said Aditi Nayar, chief economist at ICRA.

However, the inflation rate for the other categories either hardened or remained unchanged in September, with a renewed surge in the global prices of many commodities, she said.

Inflation in cement and steel hardened further in September.

Nayar cautioned that after four months of consecutive moderation, the WPI inflation rate may rise in October, and remain in double digits in Q3FY22.

“While a favourable base will moderate the WPI inflation rate during Q4FY22, it is nonetheless likely to average around 10 per cent in FY22,” she said.

Rahul Bajoria, India chief economist at Barclays, said the CPI inflation rate is likely to average 5.4 per cent in FY22, with risks balanced. “That should likely keep the RBI on its path to commence policy tightening, with a hike of 20 basis points in the reverse repo rate in December,” he said.

Nayar said the MPC members are unlikely to choose to sacrifice growth at a time when inflation is being driven up by global supply-side issues. “We remain convinced that normalisation will commence only after demand-side pressures start dominating inflation,” she said.