Inflation's Surprising Twist: October's Deflationary Dive
In a surprising turn of events, inflation took a nosedive in October, falling to a negative 1.21%. This is a significant drop from the 0.13% increase in September, and it's all thanks to the steep deflation in food prices and softer prices across fuel and manufactured goods. The Wholesale Price Index (WPI) is now at a 27-month low, according to official data released on Friday.
The industry ministry attributes this negative print to lower prices of food articles, crude petroleum and natural gas, electricity, mineral oils, and basic metals. The food inflation saw the steepest fall, with overall deflation widening to 8.31% from 5.22% in September. Prices of vegetables, pulses, and key staples dropped sharply, led by onion and potato prices, which slid 39.88% and 65.43%, respectively.
But here's where it gets controversial: While the WPI is declining, retail inflation data released last week showed a historic low of 0.25% in October, compared to 1.44% in September. This drop is attributed to the Goods and Services Tax (GST) rationalization and a high base effect. The Reserve Bank of India held its policy rate steady at 5.5%, but with both WPI and CPI declining sharply, there's a growing expectation that the Monetary Policy Committee may consider reducing the repo rate in the December meeting.
Analysts predict that wholesale prices will remain subdued for the next few months due to a favorable base and the impact of tax cuts. Paras Jasrai, Associate Director at India Ratings and Research, expects WPI deflation in November to be under 1%. However, while domestic growth trends don't strongly justify monetary easing, the central bank may still opt for a 25-50 basis point rate cut to prevent prolonged economic sluggishness. FY26 retail inflation is projected to fall to about 2.5%.
Industry bodies also anticipate benign price conditions to persist. PHDCCI CEO and Secretary General Ranjeet Mehta believes that wholesale inflation should remain range-bound, given soft global crude prices, adequate foodgrain stocks, and a healthy kharif harvest. So, while the WPI is declining, the story of inflation is more complex, and it's all about the interplay of various factors.
