India's wholesale inflation, as measured by the Wholesale Price Index (WPI), fell to a three-month low of 2.04% in July from a 16-month peak of 3.36% in June, owing mostly to a strong drop in food costs. Food price inflation was 3.45% in July, down from 10.87% in June.

According to data provided by the Ministry of Commerce and Industry on Wednesday, prices for other main sub-indices, such as manufactured goods and gasoline and power, had slightly higher Year-on-Year (Y-o-Y) inflation in the month.

Within food articles, pressure on factory gate prices has eased significantly due to a decrease in the costs of vegetables (-8.93%) and eggs, meat, and fish (-1.59%). Meanwhile, prices for onions (88.77%), cereals (8.96%), paddy (10.98%), and pulses (20.27%) all fell slightly.

Potato prices, on the other hand, increased by 76.23 percent and fruits by 15.62 percent throughout the month.

Inflation in manufactured products, which account for 64.2% of the index, increased to 1.58 percent in July from 1.43 percent in June. This was driven by increases in the pricing of manufactured beverages (2.14%), tobacco (2.31%), textiles (2.09%), wood goods (3.53%), and pharmaceuticals (2.05%), among others.

WPI inflation at a Three-month Low

In July, factory gate prices for fuel and power advanced by 1.72 percent, while cooking gas prices increased by 6.06 percent. The costs of high-speed diesel (-1.65%) and gasoline (-0.64%) continued in contraction during the month, but there was some increase.

This slowdown in factory gate inflation comes just days after the large base effect and drop in food prices drove the retail inflation rate to an almost five-year low of 3.54 percent in July. Although the Reserve Bank of India (RBI) monitors retail inflation for monetary policy purposes, the decline in WPI may help to keep retail inflation low, albeit with a time lag.