The Wholesale Price Index (WPI) in India is expected to range between 2% and 3% over the next two quarters, averaging around 3% for the fiscal year 2025 (FY25), according to top economists from two credit rating agencies. This prediction follows the Commerce and Industry Ministry’s announcement that the WPI for April 2024 was 1.26%.
Suman Chowdhury, Chief Economist and Head of Research at Acuite Ratings & Research, commented on the recent numbers. “WPI trajectory in India is finally showing signs of a pickup, rising to 1.26% year-on-year (YoY) in April ’24 from 0.53% YoY in March ’24,” he said.
This is the highest WPI figure in the last 13 months, driven by a shift from deflation to inflation in the fuel and power sectors, which recorded a 1.4% YoY increase. Factors contributing to this rise include higher global crude prices and increased power tariffs.
Chowdhury noted that wholesale food group inflation also saw a rise to 5.5% YoY, reflecting higher prices for vegetables and fruits. On the other hand, the wholesale inflation for manufactured goods remained in the negative zone at minus 0.4% YoY, although the extent of deflation has decreased.
Manufacturing inflation has been in deflation since March 2023, suggesting low input costs for the industrial sector due to weak global demand. However, a stronger domestic economy might soon push manufacturing inflation higher.
Chowdhury predicts that with the expected rise in fuel, power, and manufacturing inflation, WPI inflation will likely test higher levels this year. Overall, he expects WPI inflation to stay between 2% and 3% over the next two quarters, barring any major surprises in commodity prices.
This could also complicate efforts to moderate headline Consumer Price Index (CPI) inflation to 4.5% in FY25, making it challenging for the Reserve Bank of India (RBI) to consider rate cuts in the first half of the year.
Rajani Sinha, Chief Economist at CARE Ratings, also shared insights on the WPI forecast. She noted that wholesale inflation in fuel and power turned positive in April after 11 months. This was influenced by Brent crude oil prices, which hit $90 per barrel in April due to supply chain disruptions in the Middle East amidst geopolitical conflicts.
Although Brent crude prices have moderated recently, rising global commodity prices, especially industrial metals, need close monitoring as they could increase input costs. Industrial metal prices have surged by about 20% in the past three months, according to Sinha.
Looking ahead, Sinha expects the base effect to remain adverse over the next two months, leading to higher WPI inflation. External risks from ongoing geopolitical tensions also need to be watched, given their potential impact on supply chains.
However, the outlook for food inflation has improved due to expectations of a normal monsoon, which should boost agricultural production. Monitoring the monsoon’s timing and distribution will be crucial. Sinha concludes, “We expect WPI inflation to average around 3% in FY25.”
