Editorial 2 : A Good Low
Context: Sustained moderation in inflation.
Introduction: Both wholesale (WPI) and retail (CPI) inflation rates moderated. Wholesale Price Index grew by just 0.9% in April 2025, which is a 14-month low. Retail inflation measured by the Consumer Price Index came in at 3.2% in April, the lowest level in six years.
Wholesale Price Index (WPI) Trends
- Consistently low or negative over the past 24 months (e.g. periods of deflation).
- It is less concerning compared to CPI for policymakers.
- WPI has not been a major stress point for India’s economy in recent years.
Consumer Price Index (CPI) Trends
- RBI’s Comfort Zone: 2–6% target range.
- Historical Volatility
- Since 2019: Multiple spikes above 6–7% due to supply shocks like unseasonal weather (e.g. excessive rains), COVID-19 pandemic disruptions and Russia-Ukraine war impacts.
- FY25 Inflation: Averaged 4.6%, the lowest since FY19 and closer to RBI’s 4% target.
Factors Driving Inflation Moderation
- Crude Oil Price Trends: Expected moderation in global crude prices reduces input costs across sectors (e.g. transport, manufacturing).
- Monsoon Forecast: Above normal monsoon predicted for 2024, likely boosting agricultural output and stabilizing food prices.
- Base Effect: High inflation in previous years creates a favourable statistical base for lower YoY comparisons.
Future Outlook
- FY26 Projections: Analysts estimate CPI inflation at 3.5%, down sharply from more than 6% levels in FY21–FY23.
- Key Risks
- Geopolitical tensions affecting oil prices.
- Erratic monsoon impacting food inflation.
Policy Implications
- Fiscal Measures - Excise Duty Hike: Government raised duties on petrol/diesel by Rs. 2 per litre in April 2024 to mobilize Rs. 300 billion in revenue amid lower crude prices.
- Monetary Policy - RBI Rate Cuts
- 50 basis points reduction expected over June and August 2024 policy reviews.
- Reflects confidence in inflation staying within target, enabling growth-focused measures.
- Broader Economic Impact
- Consumer Relief: Lower inflation boosts disposable income and demand.
- Growth Momentum: Policy space opens for investments in infrastructure and job creation.
Conclusion: The sustained moderation in inflation, particularly CPI, marks a turning point for India’s economy after years of volatility. While external risks (oil prices, monsoon) persist, the current trajectory supports fiscal consolidation and accommodative monetary policy to drive growth.