India: WPI falls into negative for first time since July 2020, govt cites high base effect as the reason

A high base effect and moderation in global commodity prices has resulted in Wholesale Price Index (WPI) falling to a near three-year low of (-) 0.92 per cent in April. This is the first instance in nearly three years (July 2020) that the inflation rate based on WPI has slipped into negative territory, according to data released by the Ministry of Commerce and Industry on Monday.

"Decline in the rate of inflation in April 2023 is primarily contributed by fall in prices of basic metals, food products, mineral oils, textiles, non-food articles, chemical & chemical products, rubber & plastic products and paper & paper products," the government noted. 

According to experts, the trend is expected to continue as the year progresses. The full-year WPI inflation is estimated to remain in the range of one to two per cent. 

"High base effect and falling commodity prices will lend downward pressure on WPI inflation this year," Madan Sabnavis, an economist at Bank of Baroda was quoted as saying by Reuters. He added that low commodity prices will also bring down the prices of manufactured goods. 

A lower WPI inflation rate could help in pulling retail inflation down with its lagged impact making a significant dent on the core CPI inflation. 

The retail inflation in the country eased to 4.7 per cent in April which was an 18-month low, as against 5.7 per cent recorded in the month of March. 

It was in July 2020 that WPI last recorded deflation at t (-) 0.25 per cent while the previous low was recorded in June 2020 at  (-) 1.81 per cent. 

WPI is an important measuring gauge to determine inflation in the country. It represents the price of goods at a wholesale stage i,e when they are sold in bulk and traded between organisations, not the consumers. 

Fiscal and monetary policy changes are influenced by changes in WPI and several countries use it as a measure of inflation. It is calculated by finding the difference between the WPI calculated at the start and end of the year. The percentage increase in WPI over a year gives the rate of inflation for that year.