WPI: Wholesale Prices Suggest Beginning Of Period Of Disinflation

India’s Wholesale Price Index contracted 3.21% in May, the most since November 2015, compared with an increase of 0.42% in March.

Pallavi Nahata @PallaviNahata

15 Jun 2020, 01:52 PM IST

The prices of produce are displayed above a stall at a vegetable market in Mumbai, India, on Wednesday, March 25, 2020. Photographer: Dhiraj Singh/Bloomberg

India’s wholesale inflation fell to the lowest in more than four years, led by a fall in fuel and power prices.

The Wholesale Price Index fell 3.21% in May on an annual basis, the most since November 2015, after an increase of 0.42% in March, according to a media statement released by the Ministry of Commerce and Industry. A Bloomberg poll of economists had forecast WPI to fall 1.2% in May.

In April the government had released limited information due to data collection issues. The final index for the month of April 2020 will be released next month.

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Inflation Internals

Primary articles inflation fell to -2.92% in May against -0.79% in April.
Fuel and power inflation was at -19.83% against -10.12% in April.
Food articles inflation stood at 1.13% compared with 2.55% in the previous month.
Among food articles, wholesale prices of vegetables fell 12.48% in May after rising by 2.22% in April.
Non-food articles inflation was at -3.53% against -1.17% last month.

For manufacturing articles, inflation fell to -0.42% in May compared to 0.25% in March. Figures for April were not released, citing inadequate information.

The Beginning Of Deflation?

The contraction in wholesale prices in May is the first in four years. Economists expect it to continue, indicating the onset of deflation in wholesale prices. Deflation occurs when there is a general decline in prices because of poor demand.

Aditi Nayar, principal economist at ICRA, estimates WPI inflation to be at -1.5% for the full financial year. Wholesale prices are largely reflective of global commodity prices, she said. Retail inflation, too, is expected to ease and food prices are expected to crash between November 2020 to February 2021 on account of the base effect, Nayar said. The deflation in wholesale prices may lead to a sharper divergence between wholesale and retail prices.

The government did not release headline retail inflation for May. Food and beverage inflation stood at 7.4% in May compared to 8.6% in April.