WPI Inflation Drops to 4-Month Low of 1.31% in August

India’s wholesale price index (WPI)-based inflation fell to a four-month low of 1.31% in August, down from 2.04% in July. This decline is primarily attributed to reduced prices of manufactured products and food items. According to data from the Commerce Ministry, food price inflation decreased to 3.11% in August from 3.45% in July. Key factors include lower prices in cereals (8.44%), paddy (9.12%), and pulses (18.57%), although onion prices remained high at 65.75%. Conversely, potato prices surged by 77.96%, and fruit prices increased by 16.7% in August.

Manufactured Products

Manufactured products, which have a 64.2% weight in the WPI, saw inflation drop to 1.22% from 1.58% in July. This was driven by lower prices in various sectors, including manufactured food products (3.61%), beverages (1.9%), textiles (1.79%), wood products (3.17%), and pharmaceuticals (1.97%).

Fuel and Power

Factory gate prices for fuel and power contracted by 0.67%, with high-speed diesel and petrol seeing declines of 3.03% and 4.23%, respectively. However, cooking gas prices increased by 14.4%.

Retail Inflation

Retail inflation rose slightly to 3.65% in August from 3.6% in July but remains below the Reserve Bank of India’s medium-term target of 4%. The drop in WPI inflation could help keep retail inflation low, though with a time lag.

Future Outlook

Economist Rahul Agrawal from Icra Ratings noted that while food prices have eased in September, adverse base effects could lead to higher inflation for primary food articles. Additionally, surplus rainfall could impact kharif crop yields and potentially delay harvesting. However, healthy reservoir storage might support rabi crop sowing.