Wholesale inflation eases to 1.9% in November as food prices drop

India’s wholesale inflation decreased to a three-month low of 1.89 percent in November, down from 2.36 percent in October, according to government data released on December 16. This decline was largely driven by cooling food prices and a favorable base effect.

"The arrival of fresh harvests has led to a seasonal correction in food prices," said Rajani Sinha, Chief Economist at CareEdge. "Meanwhile, inflation in manufactured goods remained subdued, rising slightly to 2 percent due to an unfavorable base effect from the previous year. Deflation in the fuel and power sector persisted, continuing the trend observed over the past four months."

Primary article inflation eased significantly, dropping to 5.5 percent from 8.1 percent in October, with food prices falling to 8.6 percent from 13.5 percent. Data released last week also showed a decline in consumer inflation, which fell to 5.5 percent in November from a 14-month high of 6.2 percent in October, mainly due to lower vegetable prices.

In the wholesale market, vegetable inflation fell to 28.6 percent from 63 percent in October. Notably, onion prices saw a significant drop from 39.3 percent to 2.9 percent, while potato prices increased from 78.7 percent to 82.8 percent. The fuel and power sector remained in deflation for the fourth consecutive month, with prices easing further to 5.83 percent from 5.79 percent in October.

Manufactured products inflation stayed muted at 2 percent compared to 1.5 percent in October. "Wholesale core inflation reached a four-month high of 0.5% in November 2024 but remains benign due to a sustained decline in metal prices. However, there was a broad-based uptick in inflation at the sub-sectoral level, with 13 out of 21 industries within the core experiencing higher inflation in November 2024 compared to October," said Paras Jasrai, Senior Analyst at Icra.

India’s higher-than-expected inflation trajectory has delayed reductions in key policy rates by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC). The MPC kept rates unchanged for the eleventh consecutive time in its December meeting, revising India’s inflation forecast upward to 4.8 percent from the previously projected 4.5 percent for FY25.

Experts predict that the Wholesale Price Index (WPI) will remain muted in FY25. "ICRA expects the headline WPI inflation to rise to approximately 2.5-3.0% in December 2024 (from 0.9% in December 2023) due to a favorable base. A majority of food items tracked by the Department of Consumer Affairs have shown an uptick in year-on-year inflation prints in December 2024 (up to December 15, 2024) compared to November 2024," said Aditi Nayar, Chief Economist at Icra.

For FY25, inflation is expected to average 2.5 percent, according to Sinha from CareEdge.