India’s WPI inflation declines on the back of low food inflation

India's January wholesale price inflation surprisingly declined, however, markets still expect it to turn positive in Q1. WPI inflation decreased to -0.9% y/y in January as compared to -0.7% y/y in December. The decline came in lower than markets expectation of -2.0%. For the previous 15 months wholesale price inflation has been in the red zone. The drop in the headline rate has been primarily driven by food inflation as it plunged to 6.0% y/y from 8.1% y/y in December. However, over the forthcoming months, WPI inflation is expected to gain momentum.

The RBI is expected to consider this weakness in the WPI inflation in its policy implications; however, the central bank takes the consumer price inflation into consideration for policymaking purpose as it includes a wider range of goods and services and is a simpler measure for international comparisons. The central bank is unlikely to cut interest rates this year as it is currently unable to achieve its medium-term CPI inflation targets.