( Image Source: Telengana Today)
India’s wholesale prices fell 0.32 percent year-on-year in November, a narrowing from October’s steeper 1.21 percent decline. While still technically deflationary, the month-on-month improvement suggests that the worst of the downward price pressure may be easing across the economy.
The shift matters because deflation, even if mild, presents both opportunities and risks. On the positive side, it gives the central bank room to cut interest rates. On the negative side, persistent deflation can deter investment and hiring if companies believe prices will keep falling.
What’s Driving the Numbers
Food prices continued to pull down wholesale inflation, but at a slower pace. Food deflation narrowed to 2.6 percent in November from 5.04 percent in October. Within that category, vegetable prices fell 20.23 percent, still significant but much less dramatic than October’s 34.97 percent drop.
The easing reflects normalizing harvest patterns. October’s sharp vegetable price drops were partly due to comparatively high prices a year earlier. As that base effect fades, the pace of price declines is slowing naturally.
Fuel and power saw deflation of 2.27 percent, marginally better than October’s 2.55 percent. Manufactured products inflation remained subdued at 1.33 percent, showing that even finished goods prices are struggling to gain traction.
Why the RBI Is Comfortable Cutting Rates
The Reserve Bank of India has already cut policy rates by 1.25 percentage points this fiscal year, bringing the benchmark rate down to 5.25 percent. The mild deflation in wholesale prices gives the central bank confidence to continue cutting.
Earlier this month, RBI Governor Sanjay Malhar described India’s economy as being in a “rare Goldilocks period” marked by high growth and low inflation. Growth is running at 7.3 percent, the RBI revised upward. Inflation at the consumer level hit just 0.71 percent in November.
That combination of decent growth and very low inflation is exactly the scenario that lets central banks cut rates without worrying about inflation spiralling out of control. The RBI expects inflation to average just 2 percent for the full fiscal year.
The Difference Between WPI and CPI
It’s important to understand that WPI measures prices at the wholesale level, what manufacturers and traders pay. CPI measures retail prices, what consumers actually pay. They can diverge.
WPI in November showed slight deflation at minus 0.32 percent. But consumer prices were stable at 0.71 percent. This gap suggests that retail chains and merchants are absorbing some price pressure rather than passing it fully to consumers.
What Companies Are Thinking
The wholesale deflation tells us something about business sentiment. When manufacturers are cutting wholesale prices, it often signals weak demand or overcapacity. Companies prefer to keep prices stable, but when sales slow, they cut prices to move inventory.
This fits the broader picture. India’s growth is strong, but certain sectors are struggling. Real estate is soft. Manufacturing capacity utilization Is moderate. Consumption has been decent but not booming.
The Road Ahead
Economists expect WPI deflation to gradually narrow further as the year progresses and as base effects start becoming less pronounced. Global commodity prices are slowly rising, which should provide some upward pressure on Indian wholesale prices.
For now, the data signals an economy with plenty of room for rate cuts but not so much weakness that drastic stimulus is needed. That’s the sweet spot the RBI was looking for when it started cutting rates in October.
The central bank gets to lower borrowing costs without fear that it’s fueling inflation. For businesses and consumers, it means cheaper credit for loans and mortgages just as the year draws to a close. That’s likely to support growth heading into the next fiscal year.
