New Delhi Wholesale prices, as measured by the Wholesale Price Index (WPI), contracted for the sixth consecutive month in September, according to data released on Monday by the Union ministry of commerce and industry, coming in at -0.26% from -0.52% for the previous month.
The contraction of nearly 0.3% in September 2023’s WPI print positively surprised analysts. A Bloomberg poll of economists had projected a 0.3% expansion in WPI for September 2023. The lower-than-expected WPI data comes after a sharp fall in the benchmark inflation rate, as measured by the Consumer Price Index (CPI), from 6.8% to 5% between August and September.
The contraction in WPI in September is driven by an annual contraction in prices of manufactured products, and fuel and power, which account for 64.2% and 13% of the WPI basket. To be sure, the September WPI numbers also saw a sharp fall in vegetable inflation from 67.6% and 48.4% in July and August 2023, to 15% disinflation in September.
Overall food inflation, however, remained in the positive territory with a 1.5% annual growth in prices. Inflation for primary food articles was at 3.4% in September, which is significantly lower than the 15.1% and 10.6% readings in July and August.
To be sure, prices of some primary food articles continue to increase at a high rate. Wholesale prices for foodgrain increased at 9.2% on an annual basis in September compared to 7.6% in August. Inflation for milk increased from 7.8% to 8.6% between August and September 2023. But the prices for eggs, meat and fish contracted for the second consecutive month in September.
{{/usCountry}}To be sure, prices of some primary food articles continue to increase at a high rate. Wholesale prices for foodgrain increased at 9.2% on an annual basis in September compared to 7.6% in August. Inflation for milk increased from 7.8% to 8.6% between August and September 2023. But the prices for eggs, meat and fish contracted for the second consecutive month in September.
{{/usCountry}}Since WPI essentially captures the prices of producer goods in the economy, its movement is important for corporate profit margins. “The core (non-food and non-energy) inflation continues to be in deflationary zone now for the seven months (September 2023: 1.2%). This means benign cost pressures for corporates,” Sunil Kumar Sinha Principal Economist at India Ratings and Research said in a note.
Other experts, however, flagged the sequential increase in prices of manufactured goods in the WPI basket.
“Prices of ‘manufactured products’ rose sequentially (0.4% m/m vs 0.2% in August). This is the second consecutive month of price rises in this category, which accounts for the largest share in WPI (weight: 64.3%), possibly owing to rises in input costs for producers as international commodity prices have risen in the past couple of months”, Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays said in a note. “The sequential rise in the WPI for manufactured products bears watching, if producers pass on higher costs into retail prices. As of now, firm surveys indicate the pace of increases in selling prices is lower than that in input prices,” he added.