Wholesale inflation turns negative in April, interest rates likely to fall

According to official data released by the Ministry of Commerce and Industry on Monday, India's Wholesale Price Index (WPI) recorded a negative figure of minus 0.92% in April. This marks the first time it has entered negative territory since July 2020.

As the index has come down, the Reserve Bank of India (RBI) will consider the decrease in inflation, which is currently below the six percent threshold. This will subsequently reduce the interest rates on various loans and deposits. 

The decline in inflation during April can primarily be attributed to various factors such as lower prices of food articles including cereals, wheat, vegetables, potatoes, fruits, eggs, meat, and fish. Additionally, minerals, crude petroleum and natural gas, as well as steel, also experienced a decrease in prices.

Sonal Badhan, an economist at Bank of Baroda, noted that while the prices of vegetables, milk, eggs, meat, and fish decreased, it is important to closely monitor the upward movement in prices of food grains, particularly pulses and paddy. Badhan mentioned that manufactured products have benefited significantly from the decline in international commodity prices.

This downward trend is expected to continue due to the weak global growth momentum, particularly influenced by the United States and China, which will exert downward pressure on prices. Moreover, oil prices are anticipated to weaken, providing support to the fuel and power inflation index. Badhan emphasized that the trajectory of food prices, considering the ongoing heat wave conditions and the performance of the monsoon, will be crucial moving forward.

Wholesale inflation has been consistently easing, with a rate of 1.34% in March compared to 3.85% in February. Since October, when it reached 8.39%, overall wholesale inflation has been on a downward trajectory. Notably, the WPI-based inflation remained in double digits for 18 consecutive months until September.