India's wholesale prices fall by 3.48% in May: Here are the causes

The wholesale price-based inflation rate fell to a multi-year low of (-) 3.48 per cent in May on easing prices of food, fuel and manufactured items, strengthening the case for continuing with the pause in rate hike in the coming months of the current fiscal. This is the second straight month when WPI has been in the negative zone mainly because of a higher base and falling fuel and manufactured goods prices. Food prices also eased during May.

In May, 2022 WPI inflation was at 16.63 per cent. Last month, it was (-) 0.92 per cent. Although the RBI tracks consumer price index (CPI), the decline in wholesale price index (WPI) based inflation rate will be reflected in the retail inflation with a time lag. The deceleration in WPI comes in line with the easing of May retail inflation, which came in at an 25-month low of 4.25 per cent.

"Decline in the rate of inflation in May, 2023 is primarily contributed by fall in prices of mineral oils, basic metals, food products, textiles, non-food articles, crude petroleum & natural gas, and chemical & chemical products," the commerce and industry ministry said on Wednesday. Inflation in food articles eased to 1.51 per cent in May, against 3.54 per cent in April.
Vegetables saw a decline in inflation at (-) 20.12 per cent, while the same in potato and onion was (-) 18.71 per cent and (-) 7.25 per cent respectively.
However, inflation in pulses saw a sharp uptick at 5.76 per cent, and in wheat it was 6.15 per cent.

Fuel and power basket inflation eased to (-) 9.17 per cent in May, from 0.93 per cent in April. "Indeed, India has doubled its imports of low-cost Russian oil over the past year. This has helped keep the cost of energy manageable and helped to tame its high inflation," Moody's Analytics, Chief APAC Economist, Steve Cochrane said. In manufactured products, the inflation rate was (-) 2.97 per cent in the month under review, as against (-) 2.42 per cent in April.

Barclays, MD & Head of EM Asia (ex-China) Economics, Rahul Bajoria said wholesale prices fell further last month, as pressures eased across food, fuel and core. Falling commodity prices are reducing input costs for producers, but delayed pass-through to retail prices means the gap between CPI and WPI inflation has widened. "We expect retail inflation to be on a moderating trajectory in the near term, which suggests the MPC is likely to be on hold for the rest of the fiscal 2023-24," Bajoria said, adding that "RBI will want to see headline (and ideally core) CPI inflation moving towards the 4 per cent target on a durable basis, before considering rate cuts."