India has witnessed deflation in the Wholesale Price Index (WPI) for September 2023. The provisional data reveals a contraction of 0.26% compared to September 2022, marking a slight improvement from the 0.52% deflation recorded in August 2023.
The Wholesale Price Index (WPI) is a measure of the average change in prices that businesses pay for a basket of goods at the wholesale level. It is an economic indicator used to assess inflation trends, as it reflects price fluctuations of goods before they reach the retail market. The WPI tracks the cost of raw materials, intermediate goods, and finished products, providing valuable insights into cost pressures on businesses and potential spillover effects on consumer prices.
The wholesale price deflation in September 2023 is primarily attributed to a fall in the prices of various commodities, including chemical and chemical products, mineral oils, textiles, basic metals, and food products when compared to the same month in the previous year.
Impact:
This deflationary trend is a double-edged sword for the economy. On the one hand, it can lead to lower prices for essential goods, potentially easing the burden on household budgets. However, the decline in prices can also be indicative of weak demand in the economy, which may result in job losses and reduced income for many individuals.
The month-over-month change in the WPI for September 2023, which stood at -0.59% compared to August 2023, indicates that businesses are facing challenges in passing on increased costs to consumers, leading to lower profit margins.
Breakdown by Major Groups:
1. Primary Articles: This group, which holds a weight of 22.62% in the WPI, declined by 3.80%. While prices of Crude Petroleum & Natural Gas and Non-food Articles increased, prices of Minerals and Food Articles decreased.
2. Fuel & Power: This major group, with a weight of 13.15%, increased by 2.34%, driven by rising prices of Mineral Oils and Electricity. However, Coal prices declined.
3. Manufactured Products: With a significant weight of 64.23%, this major group increased by 0.36%. Some subgroups witnessed an increase in prices, but several others saw price declines. Basic metals, machinery & equipment, and rubber & plastic products contributed to the overall increase.
4. WPI Food Index: Comprising ‘Food Articles’ from Primary Articles and ‘Food Product’ from Manufactured Products, this group decreased from 186.1 in August 2023 to 177.8 in September 2023. The year-over-year rate of inflation based on the WPI Food Index decreased from 5.62% in August 2023 to 1.54% in September 2023.
The WPI’s impact on the broader economy remains complex, as it reflects both demand-side and supply-side factors. Falling prices of essential goods can benefit consumers, but they also raise concerns about the health of the manufacturing and agricultural sectors.
While consumers may enjoy some relief from lower prices, the broader implications for the economy, especially in terms of employment and business profitability, need to be closely monitored. The final data and potential revisions in WPI figures will provide a clearer picture in the months ahead. The next press release for the WPI in October 2023 is scheduled for November 14, 2023.