Wholesale inflation rises in September due to a surge in vegetable prices

India's wholesale inflation rose to a two-month high of 1.84% in September due to the rising food prices.

The ministry of commerce and industry's provisional data showed on Monday that wholesale price index (WPI)-based inflation stood at 1.31% in August.

A Reuters poll of economists expected wholesale inflation to be around 1.92% in September.

WPI, a proxy for producers' prices, has been positive since November 2023. A year ago, it stood at -0.07%.

Food inflation, a major contributor to the index, rose to 9.47% in the month, up from 3.26% in August and 3.55% in July. It climbed to 8.68% in June from 7.75% in May.

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The rise was led by onions and potatoes, whose prices rose by 78.82% and 78.13% year-on-year, respectively.

Prices of non-food articles declined 1.64% in the month, compared to 2.08% in August. Fuel and power prices fell 4.05% in the month, compared to 0.67% in August. Crude petroleum and natural gas prices fell by 13.04%, compared to a 1.77% rise in August.

Manufactured products' prices rose 1% in the month, compared to a 1.22% rise in the previous month.

Will the WPI rise further?

The rise in the WPI inflation was primarily driven by a sharp increase in the prices of food articles, which surged to 11.5% in September, compared to just 3.1% in the prior month, according to experts.

The acceleration in food inflation can be attributed to the fading of a favourable base effect seen over the past two months.

"Risks to food inflation have not abated completely and need monitoring. Factors such as uneven monsoon, pre-harvest rainfall, and an increase in global edible oil prices add to the risks of food inflation," said Rajani Sinha, chief economist, CareEdge.

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"Although the monsoon was approximately 8% above normal, distribution issues persisted. Kharif sowing for pulses and some oilseeds has been below the historical average, which is concerning. Additionally, the extended monsoon season and recent pre-harvest showers increase the risk of crop damage," Sinha said.

Apart from food price pressures, there are also additional inflation risks from the external sector.

"The potential for a broadening conflict in the Middle East could disrupt supply chains and impact global energy prices, which would have ripple effects on the domestic economy. Furthermore, the announcement of economic stimulus in China has led to an increase in global commodity prices, particularly industrial metals, over the past couple of weeks," Sinha added.

The outlook

The evolving geopolitical condition needs careful monitoring, especially in terms of the outlook on global commodity prices for oil and metals, said Jahnavi Prabhakar, economist at the Bank of Baroda.

"With higher sowing better than 2023, the arrivals of Kharif crops are likely to be better this year. Against this backdrop, we expect WPI to ease in the fourth quarter in line with the consumer price index, provided oil and food shocks are not triggered. Any rate action by the Reserve Bank of India is warranted only by Q4FY25," Prabhakar said.

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“However, core inflation eased down further to a five-month low of 0.1% in September from 0.7% in August. Inflation in manufactured products moderated to 1%, compared with 1.2% last month. Out of the 22 sub-indices, moderation was visible in over 11 categories,” Prabhakar said, adding categories such as basic metals, wood products, textiles, rubber and plastic products and pharmaceuticals registered lower prices.

Interestingly, India’s retail inflation remained below 4% for a second month in August.