Massive Deflation Hit! India's WPI Turns Negative - Will RBI Slash Rates Next?

Author

Akshat Lakshkar | Whalesbook News Team

Detailed Coverage:

Wholesale Price Inflation (WPI) in India has entered deflationary territory, falling to -1.21 percent in October. This marks a sharp decline from 0.13 percent in September and 2.75 percent recorded in October of the previous year. The primary drivers for this negative inflation rate include substantial price decreases in food articles, particularly pulses and vegetables, as well as lower costs for fuel and manufactured goods.

Food articles saw a deflation of 8.31 percent in October, compared to 5.22 percent in September. Specific items like vegetables experienced deflation of 34.97 percent, while pulses saw a 16.50 percent drop. Onion and potato prices also saw significant price reductions.

In the fuel and power sector, deflation was recorded at 2.55 percent. Manufactured products also contributed to the slowdown, with inflation easing to 1.54 percent from 2.33 percent in September.

The decline in WPI inflation is partly attributed to the Goods and Services Tax (GST) rate rationalization, which took effect on September 22, reducing prices on many consumer items. This, combined with a favorable inflation base from the previous year, has pulled down both wholesale and retail inflation rates. Retail inflation had previously hit an all-time low of 0.25 percent in October.

Impact This significant drop in inflation, both at the wholesale and retail levels, is likely to put pressure on the Reserve Bank of India (RBI) to consider cutting its benchmark interest rates during its next monetary policy review scheduled for December 3-5. Lower interest rates can stimulate economic activity by making borrowing cheaper for businesses and consumers. Rating: 8/10

Difficult Terms: Wholesale Price Index (WPI): A measure that tracks the average change over time in the prices of goods sold and traded in bulk before reaching the retail level. Deflation: A sustained decrease in the general price level of goods and services, often associated with a contraction in the supply of money and credit in the economy. Food Articles: Items of food that are traded in bulk. Crude Petroleum & Natural Gas: Raw materials extracted from the earth for energy production. Manufactured Products: Goods produced by industrial processes. Goods and Services Tax (GST): An indirect tax levied on the supply of goods and services in India. Retail Inflation (Consumer Price Index - CPI): A measure of the average change over time in the prices of a basket of consumer goods and services. Monetary Policy Review: A periodic assessment by a central bank of the current economic conditions and decisions on interest rates and other monetary tools.