15^th September, 2022

According to the data released by the Ministry of Commerce & Industry, Inflation based on wholesale price index (WPI) dropped to a 11 month low of 12.41% in August’22 as compared to 13.9% growth of July’22.

Inflation during the month was largely driven by food inflation which spiked again to 12.37% in August as against 10.77% in the month of July. Despite a ban on exports, wheat inflation soared to 17.35%. Cereal inflation touched 11.77% in August whereas food & vegetable inflation hit 31.75% & 22.29% in August, respectively. Other factors that affected WPI are fuel & power inflation (33.67%), oil & natural gas (59.84%).

Icra chief economist Aditi Nayar said, “ Notwithstanding the broad-based sequential hardening in prices of food items in early part of ongoing month, we expect the WPI inflation to ease ~11-12% September, aided by correction in global commodity prices.”

Retail Inflation in August touched 7% in August reversing the declining trend of three month but it still remianed above the central bank’s target of 2-6% for eight straight month. The gap between WPI & CPI indicates the scope for further pass-through for some more time. However it is expected that moderation in  WPI inflation is expected to be gradual because of  weak rupee that has made imports more expensive. A lot also depends on the progress and distribution of monsoon showers.

Depite the moderation, WPI Inflation has remaine in double digit for 17 months now, which has been driven essentially by correction in global commodity prices following fears of global slowdown and reimposition of covis restriction in China.