Wholesale inflation eases but food prices, core pressures remain high

India's wholesale inflation is estimated to have moderated in August to 9.34% YoY. However, a UBI Research report warns the outlook is clouded by accelerating food inflation, rainfall deficit, high crude oil prices and persistent core cost pressures.

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India’s wholesale inflation is likely to be moderated marginally in August, but the near-term outlook remains clouded by rising food prices, a rainfall deficit, elevated crude oil prices and persistent core cost pressures, according to a Union Bank of India (UBI) Research report.

August Inflation Estimates

UBI Research estimates Wholesale Price Index (WPI) inflation at 9.34 per cent year-on-year in August 2026, down from 9.78 per cent in July, largely due to a sharp moderation in fuel inflation. However, food inflation is estimated to have accelerated to 8.14 per cent from 6.64 per cent in July, while core WPI remained elevated at 8.93 per cent.

Near-Term Outlook and Key Risks

Looking ahead, the report warned that wholesale inflation could remain elevated as domestic weather-related pressures combine with global supply-side risks.

The report said, “WPI is expected to remain elevated in the near term led by ‘rainfall deficit & war’ driven supply chain disruptions and persistent cost pressures especially in the core segment.” It added that the low-base effect and pass-through of higher input costs are likely to continue exerting pressure on headline inflation.

Component-wise Inflation Breakdown

Rising Food Prices a Key Risk

Food prices are emerging as a key upside risk. Food WPI is estimated to have risen to 8.14 per cent in August, aided by higher prices across several categories. Wholesale sugar prices jumped around 14 per cent during the month, while sequential inflation was also seen in cereals, vegetables and fruits. The food segment’s contribution to headline WPI increased to 223 basis points in August from 182 basis points in July.

Highlighting risks heading into the festive season, the report said, “Below-normal monsoon and still lagging sowing progress poses an upside risk to food WPI into the festive season.” It noted that the rainfall deficit stood at 14 per cent, while sowing continued to lag about 1.6 per cent from last year’s level.

Moderation in Fuel Inflation

Fuel inflation, meanwhile, is estimated to have cooled substantially to 13.97 per cent in August from 20.06 per cent in July, bringing its contribution to headline WPI down to 172 basis points from 248 basis points.

However, the report flagged renewed risks from crude oil, noting that prices had climbed close to USD 100 per barrel after falling below USD 70 per barrel in early July.

Persistent Core Inflation

Core WPI, excluding food and fuel, is estimated to have eased to 8.93 per cent from 9.10 per cent in July, but remained the single largest contributor to headline wholesale inflation at an estimated 538 basis points. Manufactured-product inflation was comparatively steady at 8.39 per cent against 8.27 per cent in July.

Monetary Policy Outlook

On the monetary policy outlook, UBI Research said, “We expect a shallow rate normalisation cycle of 2-3 hikes taking repo rate to 5.75-6.00% levels.”

The research house said it would continue to monitor monsoon progress and evolving global developments to assess their impact on the macroeconomic outlook. (ANI)

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