Wholesale Inflation in India Hits Four-Month High at 0.52% in August

India’s wholesale inflation rate, measured by the Wholesale Price Index (WPI), rose to 0.52% in August, marking a return to positive territory and the highest reading in four months. 

This follows a sharp dip in July, when wholesale inflation had fallen to −0.58%, a 25-month low. 

The rise in wholesale inflation mirrors a cooling consumer inflation trend, which increased to 2.07% in August after reaching an eight-year low of 1.61% in July. 

Key Drivers

• Nearly two-thirds of the WPI basket comprises manufactured products, which saw inflation climb to 2.55% in August. This is up from 2.05% in July and represents a four-month high. 
• Retail food inflation continued its negative streak for the third month running, though the rate of deflation eased. 
• The article notes that economists expect inflation pressures to ease after 22 September, when recent GST rate cuts take effect. A new two-tier GST structure was approved, moving about 90% of items into lower tax brackets. 

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Broader Implications

A low wholesale inflation print helps support India’s growth outlook, given that WPI is used in calculating the GDP deflator, which adjusts nominal GDP into real terms. 

Economic growth in India has been strong; GDP growth for the April-June quarter reached 7.8%, a five-quarter high. This has led economists to revise full-year growth forecasts upward to about 6.5%. 

Monetary Policy Expectations

With both wholesale and consumer inflation rising but still moderate, the Reserve Bank of India (RBI) is expected to hold policy rates in its upcoming monetary review from September 29 to October 1. 

So far this year, the repo rate has been cut by 100 basis points to 5.5%. Some economists believe an additional rate reduction of 25 basis points may occur later in the year, taking into account tariff pressures and possible easing by the U.S. Federal Reserve. 

Conclusion

Wholesale inflation in India has rebounded in August, climbing to 0.52% after a sharp negative dip in July. While manufactured goods saw higher inflation, food items continued to show deflation, though less severe than before. The recent GST reforms and impending tax cuts are expected to further ease price pressures. Strong GDP growth alongside moderate inflation could allow the RBI some flexibility, potentially maintaining rates in the short term with consideration for a modest cut later in the year.