India's wholesale price index increased by 4.53 percent on the year in August, down from 5.09 percent in June and just below the consensus forecast of 4.65 percent. The index advanced 0.25 percent on the month after an increase of 0.42 percent previously. Today's data follows the release earlier in the week of CPI data showing a similar fall in consumer inflation from 4.17 percent in July to 3.69 percent in August, below the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.
The decline in WPI inflation in August was largely driven by food prices, which account for around 15 percent of the index. These dropped 4.04 percent on the year after falling 2.16 percent in July, with vegetable prices falling by 20.18 percent after an decline of 14.07 percent previously. Price gains were relatively steady in other major categories. The year-on-year increase in fuel and power prices (around 13 percent of the index) eased from 18.10 percent in July to 17.73 in August, while inflation for manufactured products (around 64 percent of the total index) picked up modestly from 4.26 percent to 4.43 percent.
At their latest policy review, held at the start of August, the RBI's Monetary Policy Committee increased policy rates by 25 basis points, as they did in the previous meeting in June. Officials justified these rate hikes on the basis of their "commitment to achieving the medium-term target for headline inflation of 4.0 percent on a durable basis". Although headline consumer price inflation has now fallen below that level, officials at the time of their August policy review forecast higher inflation levels over the rest of the fiscal year and identified a number of upside risks to the inflation outlook. Catastrophic flooding in parts of the country and further weakness in the domestic currency since then may also put renewed upward pressure on many prices. This suggests that the outlook for inflation will remain the main focus for officials at the RBI's next policy review scheduled to take place early October.