India’s wholesale inflation, measured by the Wholesale Price Index (WPI), fell to 2.31% in January 2025, down from 2.37% in December, as food prices eased, according to data released by the Ministry of Commerce and Industry. The decline was widely anticipated, with the arrival of fresh harvests helping to cool vegetable prices and reduce inflationary pressures.

A Reuters poll of economists had projected wholesale inflation to rise to around 2.5%, but the actual numbers came in lower, indicating improving supply conditions in the market. Food prices, a major factor in the WPI, rose by 7.47% year-on-year in January, compared to 8.89% in December. While vegetable prices still saw an 8.35% rise on an annual basis, they were well below the 28.65% surge recorded in December.

The price of cereals increased to 7.33% in January, up from 6.82% in December, while pulses saw a marginal increase to 5.08%, from 5.02% in the previous month. Food inflation had remained a concern throughout 2023 and early 2024, primarily due to below-normal monsoon rains and uneven crop yields. However, January’s numbers indicate a gradual stabilization in food prices, contributing to the moderation in overall wholesale inflation.

Beyond Food Prices: Fuel and Manufactured Goods

The decline in WPI was also influenced by a continued drop in fuel and power prices, which fell 2.78% year-on-year, compared to a 3.79% decline in December. This marked the sixth consecutive month of falling fuel costs, which helped ease inflationary pressures across industries.

On the other hand, manufactured goods prices, which account for 64% of the WPI, increased by 2.51% in January, slightly higher than the 2.14% growth recorded in December. Despite this uptick, inflation in core industries remained under control, signaling a relatively stable cost structure for businesses.

According to India Ratings and Research, the decline in food and fuel prices helped wholesale inflation stay in check, but the rise in non-food articles and industrial metal prices pointed to a mixed trend in the broader economy. Inflation in non-food articles rose to a two-year high of 3.0%, while energy and minerals prices increased 0.6%, reversing a four-month declining trend.

India’s Monetary Policy and Inflation Outlook

While wholesale inflation showed signs of easing, retail inflation, measured by the Consumer Price Index (CPI), also saw a decline, coming in at 4.31% in January, down from 5.22% in December. This downward trend brought CPI inflation closer to the RBI’s medium-term target of 4%.

In response to cooling inflation, the Reserve Bank of India (RBI) made its first interest rate adjustment since the COVID-19 pandemic, lowering the repo rate to 6.25%. The move is aimed at stimulating economic growth while ensuring inflation remains within the 4% target range.

Higher interest rates have traditionally been used as a tool to control inflation, by making borrowing more expensive and reducing demand. With inflation now trending lower, the RBI’s decision to ease monetary policy signals support for economic expansion while ensuring that inflation does not spiral out of control.

Market and Economic Implications

The fall in wholesale inflation has positive implications for businesses, consumers, and policymakers. Lower food prices ease pressure on household budgets, while subdued fuel prices help keep transportation and manufacturing costs in check.

At the same time, rising industrial metal prices could impact manufacturing costs, potentially leading to higher input costs in the coming months. The growth in non-food articles prices also suggests that certain sectors are experiencing cost pressures, which could affect pricing trends moving forward.

The Indian government’s economic strategy in the coming months will likely focus on balancing inflation control with growth stimulation, ensuring that the reduction in food and fuel prices translates into lower overall inflation.

With global oil prices remaining stable, experts predict that inflationary pressures will continue to ease, although unpredictable weather conditions and geopolitical uncertainties could impact food and fuel prices later in the year.

Overall, India’s January WPI numbers highlight a positive trend, with inflation cooling and economic conditions improving, while policymakers continue to focus on sustaining economic momentum without letting inflation rise sharply.

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