Sharp Decline in India’s Wholesale Inflation in July

In July 2024, India's wholesale inflation dropped significantly to 2.04%. This marks the ninth consecutive month of positive inflation following a period in the negative. Concurrently, retail inflation also saw a major decrease, with food prices being a persistent challenge for policymakers aiming to achieve a 4% inflation rate target.

In line with the moderation in retail inflation, India's wholesale inflation also witnessed a notable decline in July. The annual rate of inflation based on the all-India Wholesale Price Index (WPI) stood at 2.04% for July 2024, dropping from the previous month.

This is the ninth consecutive month of positive territory for wholesale inflation, following seven months of negative figures until October. Economists generally regard a slight rise in wholesale inflation as beneficial, as it encourages manufacturers to increase production. In particular, the food index, which carries a 24.38% weight, saw its rate decrease from 8.68% in June 2024 to 3.55% in July.

The rise was driven largely by increased prices in food articles, manufactured food products, crude petroleum, natural gas, mineral oils, and other manufacturing sectors. The government releases wholesale price index numbers monthly, with data sourced from institutional sources and selected manufacturing units nationwide.

Last April, wholesale inflation was negative. Similarly, during the early COVID-19 days in July 2020, the WPI also showed negative figures. Overall wholesale inflation was 8.39% in October 2022 and has been declining since, having previously been in double digits for 18 months straight till September 2022.

Meanwhile, India's retail inflation softened considerably in July, hitting 3.54%, the lowest in 59 months, according to the Ministry of Statistics and Programme Implementation. This follows a spike to 5.08% in June, primarily due to rising food prices. The Consumer Food Price Index (CFPI) showed a provisional 5.42% inflation rate for July, with rural and urban rates at 5.89% and 4.63%, respectively.

Policymakers aim to stabilize retail inflation at 4%, though food prices remain a significant challenge. Despite inflation concerns globally, India has managed its inflation trajectory effectively. The eased retail inflation, excluding June, coincides with the RBI maintaining the repo rate for the ninth consecutive time. Since May 2022, the RBI has raised the repo rate by 250 basis points to curb inflation. The repo rate is the interest rate at which the RBI lends to other banks.

(With inputs from agencies.)