Key Points:
- Wholesale Price Index (WPI)-based inflation rose to 2.38% in February 2025, up from 2.31% in January.
- Retail inflation, based on the Consumer Price Index (CPI), dropped to a 7-month low of 3.61%.
- WPI inflation driven by rising prices of manufactured food products, vegetable oil, and textiles.
- CPI decline attributed to falling food prices, especially vegetables and protein-rich items.
- RBI expected to cut repo rates further in April after February’s 25 bps reduction.
New Delhi: India’s wholesale price inflation, measured by the Wholesale Price Index (WPI), climbed slightly to 2.38% in February 2025, compared to 2.31% in January, according to data released by the Ministry of Commerce and Industry on Monday. The rise was primarily driven by higher prices in categories such as manufactured food products, textiles, and vegetable oil.
At the same time, retail inflation based on the Consumer Price Index (CPI) eased to a seven-month low of 3.61%, marking the first time in six months that it fell below the Reserve Bank of India’s (RBI) target of 4%. This decline was largely attributed to cooling food prices and a deflationary trend in fuel and power.
Wholesale Price Inflation Trends
The WPI increase was fueled by:
- Manufactured Food Products: Inflation surged to 11.06%.
- Vegetable Oil: Prices spiked by a staggering 33.59%.
- Textiles and Other Manufacturing: These categories also saw notable price hikes.
However, some relief came from falling vegetable prices. Potato prices dropped significantly by 27.54%, down from a sharp increase of 74.28% in January. Additionally, the fuel and power category experienced a deflation of 0.71%, improving from the previous month’s deflation of 2.78%.
Retail Inflation Hits a Low
India’s retail inflation fell to its lowest level since July 2024:
- Food Inflation: Dropped sharply to 3.75% from January’s 5.97%.
- Vegetables: Inflation contracted further to just 1.07%, compared to an increase of over 11% in January.
- Urban vs Rural Inflation: Urban inflation stood at 3.32%, while rural inflation was slightly higher at 3.79%.
This decline provides significant relief for households and strengthens expectations for further monetary easing by the RBI.
RBI’s Monetary Policy Outlook
The RBI had already reduced the repo rate by 25 basis points in February to 6.25%, marking its first rate cut in five years. With CPI inflation now well below the central bank’s target range of 2-6%, another rate cut is widely anticipated at the upcoming Monetary Policy Committee (MPC) meeting scheduled for April.
Economists predict another reduction of at least 25 basis points, which would bring the repo rate down to 6%. This move is expected to support economic growth and reduce borrowing costs for businesses and consumers.
Economic Implications
The divergence between wholesale and retail inflation highlights varying pressures across sectors:
- WPI reflects rising costs for businesses due to higher input prices.
- CPI indicates easing consumer-level price pressures, particularly for essentials like food.
The RBI will likely focus on maintaining this balance while addressing risks such as global economic uncertainties and potential imported inflation.
India’s industrial output has also shown signs of recovery, with growth accelerating to 5% year-on-year in January from December’s 3.2%. This uptick, combined with easing retail inflation, sets a favorable backdrop for further monetary policy adjustments aimed at sustaining growth momentum.
As India navigates these economic dynamics, policymakers are tasked with fostering stability while ensuring that inflation remains within acceptable limits a balancing act crucial for long-term economic resilience.
