India’s Wholesale Price Index (WPI)-based inflation experienced a slight easing to 0.2% in February, down from 0.27% in January, aligning with market expectations. This marginal decline comes amidst varying price movements across essential commodities, with fuel, power, and manufactured products witnessing reductions, while food prices and crude oil registered slight upticks compared to the previous month.
Data released by the Ministry of Commerce and Industry on Thursday revealed that WPI inflation for February remained significantly lower than the revised figure of 0.86% recorded in December 2023, marking the highest level since April 2023. Comparatively, in February of the preceding year, WPI stood at 3.85%.
Wholesale inflation had remained in negative territory between April and October of the previous year, primarily driven by declines in prices of commodities such as chemicals, electricity, textiles, basic metals, food products, paper, and paper products.
The positive trajectory of WPI in February was attributed to rising prices of food articles, crude petroleum, natural gas, electricity, machinery and equipment, and motor vehicles, trailers, and semi-trailers, according to the Commerce Ministry.
Food inflation witnessed a slight uptick to 6.95% in February, following a dip to 6.85% in January from a four-month high of 9.38% in December. The increase was driven by rising prices of essential food items such as paddy, pulses, vegetables, onions, and potatoes.
Meanwhile, prices of non-food articles declined by 6.29%, fuel and power prices dropped by 1.59%, and crude petroleum and natural gas prices saw an acceleration of 8.24% during February. Additionally, prices of manufactured products decreased by 1.27% during the same period.
Economists noted that the WPI had previously remained in the deflationary zone due to favorable base effects and falling commodity prices. However, it entered positive territory in November, primarily driven by increasing food prices and waning base effects.
On the other hand, India’s consumer price index (CPI)-based retail inflation marginally eased to 5.09% in February from 5.1% in January 2024. Food and beverage prices continued to rise, while other primary categories such as clothing, footwear, housing, and transport experienced marginal declines. Retail inflation has remained above the central bank’s target of 4% but has stayed within its tolerance range of 2-6% for the sixth consecutive month.
The Reserve Bank of India (RBI) opted to maintain policy rates unchanged, with repo rates held at 6.5% for the fourth consecutive time. Adjusting interest rates serves as a crucial tool for the central bank to manage inflation. Higher interest rates can make borrowing more expensive, thereby reducing demand among banks, financial institutions, and consumers. Moreover, reducing the money supply in the market can also lead to decreased consumer spending.