India’s Wholesale Inflation Rises to Two-Month High of 2.38% in February

Retail Inflation Drops to a Seven-Month Low Amid Falling Food Prices

India’s wholesale inflation climbed to a two-month high of 2.38% in February, slightly up from 2.3% in January. The increase was driven by rising costs in the manufacturing sector, which offset the decline in food prices. Meanwhile, retail inflation fell to a seven-month low of 3.6%, with food inflation reaching its lowest level in 21 months.

The divergence between wholesale price index (WPI) inflation and consumer price index (CPI) inflation reflects the weightage difference in the indices. While manufacturing products dominate WPI (accounting for nearly two-thirds of the index), food items hold a higher weightage of nearly 50% in CPI.

Core Inflation Hits Seven-Month High Amid Rising Input Costs

Despite the moderation in consumer inflation, core inflation (which excludes food and fuel) rose at its fastest pace in seven months. A key factor behind this was the increase in input costs for manufacturers, who passed on the burden to consumers.

• The Purchasing Managers’ Index (PMI) released on March 3 indicated that producers faced higher raw material costs, which were transferred to end consumers due to strong demand.
• This signals persistent pricing pressures in the manufacturing sector, despite the decline in food and fuel inflation.

Oil Prices Below $80 Per Barrel to Support Inflation Outlook

A positive factor for inflation control is the fall in crude oil prices, which has stayed below $80 per barrel. Given India’s dependence on oil imports, lower crude prices are expected to keep fuel-related inflation in check and prevent further spikes in overall price levels.

RBI’s Monetary Policy: Another Rate Cut Expected in April

The continued fall in retail inflation strengthens the case for another rate cut by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in its April policy meeting.

• In February, the MPC reduced the repo rate by 25 basis points (bps) to 6.25%, marking the first rate cut in five years.
• With inflation projected to remain below RBI’s target of 4%, the policy rate is expected to fall to 6% in April with another 25 bps cut.
• However, the rate-cut cycle is expected to be limited, and analysts predict that the RBI will not push rates below 5.75% in the near future.