India’s wholesale inflation rate saw a significant drop for the second consecutive month, falling to 1.31% in August, primarily due to reduced prices of vegetables, food items, and fuel. This comes as welcome relief after inflation stood at 2.04% in July, as per the data released by the government on Tuesday. The trend marks a continued decrease from the same time last year when the wholesale price index (WPI) inflation was recorded at (-) 0.46% in August 2023.
Key Drivers of Inflation Decline
The Ministry of Industry, in its statement, emphasized that the positive inflation rate in August 2024 was mainly driven by price hikes in food articles, processed food products, textiles, machinery, and equipment manufacturing. However, the overall inflation rate was kept in check by notable declines in other sectors.
“Positive rate of inflation in August 2024 is primarily due to an increase in prices of food articles, processed food products, other manufacturing, manufacture of textiles and manufacture of machinery & equipment etc,” stated the ministry.
Food Inflation Moderates, Vegetable Prices Drop
One of the critical factors behind the moderation in wholesale inflation was the decline in food prices, particularly in vegetables. The inflation rate for food items stood at 3.11% in August, compared to 3.45% in July. The drop was led by a substantial deflation in vegetable prices, which recorded a sharp decline of 10.01% in August, an improvement from 8.93% deflation in July.
However, despite the easing prices of vegetables, inflation in essential food staples like potatoes and onions remained alarmingly high. In August, potato prices surged by a staggering 77.96%, while onion prices saw a 65.75% inflation rate.
Fuel and Power Categories Experience Deflation
In the fuel and power sector, inflation turned negative in August, recording a deflation of 0.67%. This is a reversal from July, when the sector experienced inflation of 1.72%. Lower energy costs have contributed to the overall downward trend in wholesale inflation.
Retail Inflation Reflects Similar Trends
The recent decline in wholesale inflation aligns with the trends observed in retail inflation. Data released last week revealed that retail inflation stood at 3.65% in August, slightly higher than 3.60% in July, driven by higher vegetable prices. Retail inflation is a crucial factor considered by the Reserve Bank of India (RBI) when formulating monetary policy.
RBI Holds Interest Rates Steady
Despite the inflationary pressures, the Reserve Bank of India opted to keep the benchmark interest rate, or repo rate, unchanged for the ninth consecutive time in August at 6.5%. The central bank has maintained a cautious approach as it monitors inflation trends and other macroeconomic indicators.
The RBI’s monetary policy decisions are primarily based on retail inflation figures, which have shown a slight uptick but remain within manageable limits.
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