Wholesale prices drop for second month in a row

India’s wholesale prices remained in deflationary zone for the second month in a row in May, with prices falling 3.48%, and all categories reporting a contraction in prices compared to May 2022, when inflation had hit a record high of 16.6%.

India’s wholesale prices remained in deflationary zone for the second month in a row in May, with prices falling 3.48%, and all categories reporting a contraction in prices compared to May 2022, when inflation had hit a record high of 16.6%.

The effects of a high base from last May, when taxes on petroleum products were slashed, dragged fuel and power inflation to -9.2%, while manufacturing products’ prices fell 3%.

Primary articles recorded a deflation of 1.8% and the wholesale food index dropped 1.6% compared to a 0.2% rise in April 2023, when overall wholesale prices had recorded a 0.92% deflation.

“Decline in the rate of inflation in May 2023 is primarily contributed by fall in prices of mineral oils, basic metals, food products, textiles, non-food articles, crude petroleum & natural gas, and chemical & chemical products,” the Commerce and Industry Ministry said in a statement.

While base-effects have partly contributed to the decline, the sequential momentum has been weaker than expected. Indeed, on a seasonally adjusted basis, the index has been declining (Month-on-Month) since February, IDFC First Bank said in a note.

“Importantly, after a gap of 26 months, industrial raw material inflation is lower than non-food manufacturing inflation. Producer pricing power has improved as domestic demand conditions remain resilient,” the note added.

ICRA chief economist Aditi Nayar said this was the lowest Wholesale Price inflation recorded since November 2015 and the deflation is likely to persist at around 2.5% and 3.5% in June due to base effects from last year, when wholesale prices rose 16.2%.