India’s Wholesale Prices Plumbs 29-Month Low on Lower Fuel Costs

India’s factory-gate prices slowed to a 29-month low in March, primarily driven by lower fuel costs and a favorable base effect, giving the central bank scope to take an extended break from its interest rates tightening cycle.

(Bloomberg) — India’s factory-gate prices slowed to a 29-month low in March, primarily driven by lower fuel costs and a favorable base effect, giving the central bank scope to take an extended break from its interest rates tightening cycle.

Wholesale prices rose 1.34% in March from a year ago, data released by the government showed on Monday — the lowest reading since October 2020. It was less than economists’ expectation of a 1.60% rise in a Bloomberg survey.

Fuel and power costs rose 8.96%, down from 14.82% a month ago while manufactured products inflation contracted to 0.77% compared to a jump of 11.26% in the same month a year ago and a 1.9% rise clocked in the previous month. 

Meanwhile, food price inflation ticked up compared to last month, although on a year-on-year basis it slowed to 5.48% from 8.44% in the same period last year. 

While the Reserve Bank of India targets retail inflation, the WPI at a 29-month low will provide some comfort to policymakers.

“The downtrend is expected to continue, with the WPI inflation remaining below 1% for the next three months, given the favourable base,” said Rajani Sinha, chief economist at CareEdge. “Some uptick can be seen from the second quarter onwards as the support from favorable base fades but the monthly WPI inflation is still expected to remain below 5% in absence of any major turnaround in global crudeoil and commodity prices.”

The softer wholesale prices data come days after a report showed India’s headline inflation eased back into the Reserve Bank’s target range, giving the central bank some leeway to pause after it raised benchmark rates by 250 basis points in the past year. While pausing on interest rate hikes earlier this month, Governor Shaktikanta Das had said that the decision should not be considered as a pivot. 

–With assistance from Vrishti Beniwal.

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