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India’s Wholesale Inflation Remains Steady at 2.38% in February

India’s wholesale inflation rate witnessed a slight increase in February 2024, settling at 2.38%, as per data released by the Ministry of Commerce on Monday. This figure is marginally higher than January’s wholesale inflation rate of 2.31%. The rise in manufactured food products, textiles, and non-food articles contributed to the inflationary pressure. However, a decline in the Food Index brought some relief.

Understanding Wholesale Inflation and WPI

Wholesale inflation is measured using the Wholesale Price Index (WPI), which tracks the price movement of goods at the wholesale level before they reach consumers. Unlike Consumer Price Index (CPI)-based inflation, which reflects retail prices, WPI captures inflation trends in the manufacturing and wholesale sector.

The WPI is crucial for policymakers, businesses, and analysts as it provides insights into cost pressures within industries and serves as a leading indicator for future retail inflation.

February Inflation Data: Key Highlights

  1. Inflation Rate: Wholesale inflation stood at 2.38% in February, up from 2.31% in January.
  2. Major Contributors: The inflation increase was driven by manufactured food products, food articles, textiles, non-food articles, and other manufacturing categories.
  3. Food Index Decline: The Food Index, which includes primary food articles and manufactured food products, declined from 7.47% in January to 5.94% in February, providing relief in food price pressures.
  4. Positive Inflation Trend: WPI-based inflation has remained in positive territory for over a year, indicating steady demand and supply trends in the economy.
  5. Historical Trends: WPI inflation was in double digits for 18 consecutive months until September 2022, after which it declined. It briefly turned negative in April 2023 and had also gone negative in July 2020 due to the COVID-19 pandemic.

Factors Influencing Wholesale Inflation in February

1. Rising Prices in Key Sectors

The inflation rate was influenced by an increase in the prices of:

  • Manufactured Food Products: Processed food items saw a price rise due to higher raw material costs and supply chain disruptions.
  • Primary Food Articles: While the overall Food Index declined, certain commodities, such as cereals and pulses, still experienced price increases.
  • Textiles: The textile industry saw a rise in input costs, contributing to inflation.
  • Non-Food Articles: Raw materials for industries, such as cotton, oilseeds, and rubber, witnessed price fluctuations.

2. Decline in Food Inflation

Despite inflationary pressures in certain categories, food price inflation eased in February. Vegetables, fruits, edible oils, and fats saw some price correction, bringing down the overall Food Index from 7.47% to 5.94%.

3. Impact of Monetary Policy

The Reserve Bank of India (RBI) plays a crucial role in controlling inflation through monetary policy tools.

  • The repo rate (the interest rate at which RBI lends money to commercial banks) had been held at 6.5% for nearly five years to curb inflation.
  • Recently, RBI reduced the repo rate by 25 basis points, aiming to boost economic growth and support consumption.
  • This policy adjustment could influence future inflation trends, affecting wholesale and retail price levels.

Impact on the Economy

1. Manufacturing and Business Sector

  • A moderate increase in WPI inflation is generally considered beneficial, as it signals demand growth and encourages manufacturers to increase production.
  • However, higher input costs for businesses may reduce profit margins, leading to potential price hikes for consumers.

2. Consumer Prices and Retail Inflation

  • A decline in wholesale food inflation may eventually translate into lower retail food prices, benefiting consumers.
  • However, persistent inflation in manufacturing sectors could keep consumer goods prices elevated.

3. Government Policies and Economic Stability

  • The government publishes WPI inflation data monthly, typically on the 14th or the next working day, based on data from institutional sources and selected manufacturing units.
  • Policymakers closely monitor wholesale inflation trends to take appropriate measures for economic stability.

Summary Table: India’s Wholesale Inflation in February 2024

Category Details
Why in News? India’s WPI inflation rose slightly to 2.38% in February 2024, up from 2.31% in January.
Key Contributors Higher prices of manufactured food products, textiles, and non-food articles.
Food Index Trend Declined from 7.47% in January to 5.94% in February, easing food price pressures.
WPI Historical Trend Double-digit inflation for 18 months until September 2022; turned negative in April 2023.
RBI’s Monetary Policy Repo rate reduced by 25 basis points to support growth and consumption.
Impact on Economy Encourages manufacturing production but may increase consumer prices.
Government Measures Monthly publication of WPI inflation data to guide economic policies.

 

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