NB Explains | India's wholesale inflation stays in the negative zone for 6th month; What does it mean?

New Delhi, Oct 16: Wholesale inflation in India based on the Wholesale Price Index continued to stay in the negative zone for the sixth straight month through September, official data released by the Ministry of Commerce and Industry showed.

This index, which reflects producer inflation, is considered more of an academic interest than a direct influence on overall policy since the adoption of targeted inflation in 2016.  

 

 

In April this year, it went into negative territory. Similarly, in the initial days of COVID, in July 2020, the WPI was reported to be negative. The September wholesale inflation came in at (-) 0.26 percent against (-) 0.52 per cent in August, and against (-) 1.23 the previous month of July, official data stated.

 

 

Deflation in September is primarily due to a fall in prices of chemical and chemical products, mineral oils, textiles, basic metals and food products as compared to the corresponding month of the previous year.

 

The WPI data comes after the statistics ministry had said on October 12 that headline retail inflation had fallen to a three-month low of 5.02 percent in September.

 

The government releases index numbers of wholesale prices on a monthly basis on the 14th of every month (or the next working day). The index numbers are compiled with data received from institutional sources and selected manufacturing units across the country.

 

Overall wholesale inflation was 8.39 per cent in October 2022 and has fallen since then. Notably, the wholesale price index (WPI)--based inflation had been in double digits for 18 months in a row till September last year.

What Does A Negative WPI Mean?

 
A negative WPI inflation, technically termed as deflation, means that overall wholesale prices have been falling year-on-year. The decline in the WPI-based inflation rate is usually reflected in the retail inflation data with a time lag. So, the retail inflation is expected to fall further in the coming months.

 

Meanwhile, the retail inflation in India is again back in RBI 2-6 per cent comfort level in September but is above the ideal 4 per cent scenario. September retail inflation was at 5.02 per cent.

 

Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.