Inflation, recorded by the Wholesale Price Index (WPI), hit a two year low at 3.85 per cent in February 2023. Compared to January, inflation has dropped by 88 basis points this month. Moreover, this is the ninth consecutive month of cooling in WPI inflation after a multi-decadal high of 16.63 per cent in May 2022.

A fall in inflation was observed under all groups, namely, primary articles, fuel & power and manufactured products. However, a major chunk of this month’s fall comes from the manufactured products group, which holds a weight of 64.23 per cent in the WPI. Inflation in this group fell from 2.99 per cent in January 2023 to 1.94 per cent in February - a handsome 105 basis points fall.

Within the manufactured products group, food products saw a dramatic 302 basis points fall from 3.95 per cent in January 2023 to 0.93 per cent in February. Textiles, which holds a weight of 4.88 per cent in WPI, saw deflation worsen from 2.14 per cent in January to 3.51 per cent in February. This has reflected in this month’s CPI inflation of clothing and footwear that stood at 8.79 per cent compared to 9.08 per cent in January.

Under primary articles, the only group that did not record a fall in inflation was the food articles group. This group observed a rise in inflation from 2.38 per cent in January 2023 to 3.81 per cent this month. This is largely attributed to the rise in WPI inflation in milk, as well as the easing of deflation in fruits and vegetables.

Wholesale price inflation in milk saw a drastic rise of 137 basis points to 10.33 per cent this month the highest recorded inflation in milk since March 2018. Inflation in milk has been rising since September 2022 when it stood at 5.55 per cent. Since then, there has been a 478 basis points increase in milk inflation in the wholesale market. This is likely due to the prevalence of lumpy skin disease amongst cattle in the recent past which affected milk produce. This has had quite an impact on the retail inflation of milk recorded this month. Retail inflation of milk closed at 9.65 per cent which is the highest recorded CPI milk inflation in at least five years.

Prices of fruits and vegetables in the wholesale market saw deflation ease from 15.16 per cent in January 2023 to 10.05 per cent in February. This fall has also impacted retail inflation of fruits and vegetables. Fruits saw a significant increase in retail inflation from 2.99 per cent in January 2023 to 6.38 per cent in February, which contributed to the stubborn retail inflation this month. Retail prices of vegetables, which have deflated for four months now, saw an easing of deflation to 11.61 per cent from 11.70 per cent in January.

Wholesale price inflation in non-food primary articles fell rather significantly this month to 0.12 per cent from 4.52 per cent in the month prior. Inflation in this group has been falling since November 2022 when it stood at 8 per cent. However, this month has observed the largest fall of 440 basis points in inflation since the onset of a continuous fall from November.

The fuel & power group has seen inflation ease to 14.82 per cent in February 2023, from 15.15 per cent in January. This group has observed inflation fall every month from 50.95 per cent in June 2022. This is mainly due to inflation in wholesale prices of mineral oils falling. Mineral oils, which carries a weight of 7.95 per cent out of the 13.15 per cent weight that fuel & power holds in WPI, includes commodities such as high speed diesel, petrol, aviation turbine fuel (ATF), and LPG.

WPI inflation in petrol fell for the second consecutive month in February 2023. Inflation in this group closed at 15.24 per cent from 15.54 per cent in January. High speed diesel recorded a fall in inflation for the fifth month in a row. Inflation in this group stood at 24.61 per cent this month compared to 28.47 per cent in January.

Overall, the fall in wholesale price inflation this month was mainly fuelled by a fall in inflation in the manufactured products group, due to its massive weight in WPI. The commodities that have seen a rise in wholesale prices hold a rather small weight compared to this. The divergence in WPI and CPI inflation has increased by 259 basis points this month compared to just 24 basis points in November.