TAG: GS 3: ECONOMY
THE CONTEXT: India’s Wholesale Price Index (WPI) data for January 2024 reveals a significant moderation in wholesale price inflation, marking the third consecutive month of positive growth after a seven-month deflationary period.
EXPLANATION:
- The overall WPI inflation stood at 0.27%, reflecting the mildest price rise since November.
Overview of WPI Data:
- Positive Growth Trend:
- After a prolonged deflationary streak, the WPI has recorded positive growth for the third consecutive month.
- Mild Inflation Rate:
- January’s WPI inflation of 0.27% is a notable decline from the previous month’s 0.73%, indicating a moderation in wholesale price increases.
- Sector-wise Analysis:
- The moderation is primarily attributed to a 1.1% year-on-year drop in manufactured product prices.
- While primary articles and food items witnessed a decrease in the rate of price rise to approximately 3.8% from over 5% in December.
Factors Influencing January’s Inflation:
- Price Drivers:
- The Commerce and Industry Ministry identifies increased prices of food articles, machinery & equipment, other manufacturing, minerals, and other transport equipment as the primary contributors to the positive inflation rate in January.
- Month-on-Month Comparison:
- On a month-on-month basis, the WPI reading decreased by 0.33% compared to December, with the Wholesale Food Index experiencing a 1.06% decline following a 2.18% dip in the previous month.
- Fuel and Power Prices:
- Fuel and power prices were 0.5% lower than January 2023 levels, marking a moderation from the previous months.
- Electricity prices, however, rose by 3.3% in January compared to December 2023.
Food Inflation Dynamics:
- Overall Decline:
- The rate of inflation in primary food articles eased to a three-month low of 6.85% from 9.4% in December.
- Specific Commodity Trends:
- While the inflation rate for cereals eased to 4.1%, fruits witnessed a five-month low inflation of 1%.
- Notably, onion inflation dropped from 91.8% in December to 29.2% in January.
- Persistent High Inflation:
- Despite the overall decline, certain food items such as vegetables (19.7%), pulses (16.1%), and paddy (9.6%) still registered relatively high inflation rates.
Manufactured Products and Disinflation:
- Disinflation Trend:
- Disinflation in manufactured products increased from -0.7% in December to -1.13% in January.
- Price Changes by Segment:
- Nine out of 22 product groups showed an increase in prices, while one segment remained constant.
- Machinery & equipment, textiles, beverages, motor vehicles, trailers & semi-trailers, and rubber & plastics products experienced month-over-month price increases.
- In contrast, prices dropped for food products, basic metals, chemicals, and some non-metallic mineral products.
Wholesale Price Index:
- It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
- Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
- It is the most widely used inflation indicator in India.
- Major criticism for this index is that the general public does not buy products at wholesale price.
- The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.
Conclusion:
- The moderation in wholesale price inflation in India for January 2024, coupled with specific trends in food and manufactured products, reflects a complex economic landscape.
- While overall inflation has eased, the persistence of high inflation rates in certain food items underscores the need for continued monitoring and potential policy interventions to ensure sustained economic stability.
- The nuanced analysis presented here provides a comprehensive understanding of the multifaceted factors influencing India’s wholesale price dynamics.