Wholesale price inflation in India recorded another large drop in April, to its lowest rate since the series began in 2005. Importantly, as the consumer price data released on Tuesday also showed, core inflation remains very weak, providing more evidence of slack in the economy. WPI inflation slowed from -2.3% y/y in March to -2.7% y/y in April. This was some way lower than consensus expectations. Wholesale price inflation has dropped again to its lowest rate since monthly prices on the current series started being tracked. Looking at the breakdown, perhaps the most important detail is that non-food manufactured product prices, which are a proxy for core prices and account for 55% of the WPI basket, fell by 0.5% y/y in April, compared with a 0.4% y/y drop in March. Crucially, this provides yet more evidence of slack in the economy. Beyond the core measure, food inflation eased to 5.7% y/y, from 6.3% y/y a month earlier. And, somewhat surprisingly given the recent rise in global oil prices, fuel inflation also edged down from -12.6% y/y in March to -13.0% y/y in April. “Looking ahead, the WPI rate should remain very low by past standards. Weekly data suggest that the worst of the food inflation spike from earlier this year may now be behind us. And there is plenty of evidence of spare capacity in the economy, which should keep a lid on core price pressures”, says Societe Generale. Admittedly, the WPI rate of inflation is becoming less important for India’s policymakers, as the CPI rate includes a wider range of goods and services and is easier for international comparisons. Nevertheless, the fact that WPI inflation has plummeted further into negative territory is unlikely to be disregarded. This reinforces the case for the RBI to continue cutting interest rates over the coming months.
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