Wholesale inflation in India based on the Wholesale Price Index turned negative in April at minus 0.92 per cent, official data released by the Ministry of Commerce and Industry showed. This has happened for the first time since July 2020.
Wholesale inflation has been easing and in March it was at 1.34 per cent against 3.85 per cent in February. Overall wholesale inflation was at 8.39 in October and has been falling since then. Notably, the wholesale price index (WPI)-based inflation had been in double digits for 18 months in a row till September.
In April, the decrease in inflation is mainly attributed to the decline in food articles, cereals, wheat, vegetables, potato, fruits, eggs meat and fish, minerals, crude petroleum and natural gas, and steel, among others. Meanwhile, retail inflation in India too eased sharply in April to 4.7 per cent or an 18-month low, as against 5.7 per cent the previous month.
India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022. Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.
The Reserve Bank of India, in its first monetary policy review meeting this fiscal in April, decided to keep the key benchmark interest rate — the repo rate (the rate at which the RBI lends to other banks) — unchanged at 6.5 per cent, to assess the effects of the policy rate tightening done so far. Barring the recent pause, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
