India’s Wholesale Inflation Contracts 0.58% in July Amid Fuel and Food Price Declines; Manufacturing Inflation Remains Positive

India’s wholesale price index (WPI) inflation for July 2025 registered a year-on-year decline of -0.58%, according to official data released by the Ministry of Commerce and Industry. This marks the fifth consecutive month of deflation in wholesale prices, underscoring the impact of falling fuel and food costs on the broader inflation landscape. The figure came in lower than the Reuters poll estimate of -0.30%, indicating a sharper-than-expected contraction.

 

Key Highlights from July WPI Data

Sectoral Breakdown

Manufacturing Inflation: A Bright Spot

Despite the overall deflationary trend, the manufacturing sector posted a positive inflation rate of 2.05% year-on-year. This suggests that industrial producers continue to maintain pricing power, likely supported by stable demand and resilient supply chains. The uptick in manufacturing prices is consistent with recent Purchasing Managers’ Index (PMI) data, which showed expansion in factory output and new orders.

 

The manufacturing sector’s performance is crucial, as it accounts for a significant portion of the WPI basket. The positive inflation here indicates that core industrial activity remains robust, even as other sectors experience price contractions.

 

Fuel & Power Index: Dragging Down the Headline

The fuel and power index saw a steep decline of -2.43% YoY, reflecting the impact of falling global crude oil prices and subdued domestic energy consumption. This component has been a major contributor to the deflationary trend in WPI over recent months. Lower fuel prices not only reduce transportation and production costs but also ripple through other sectors, dampening overall price pressures.

 

Food Index: Continued Softening

Food prices, which are often volatile, declined by -2.15% YoY in July. This drop was driven by improved agricultural output, favorable monsoon conditions, and better supply chain management. Key items such as vegetables, cereals, and pulses saw price corrections, contributing to the overall decline in the food index.

 

The moderation in food prices is a welcome development for consumers, especially in rural areas where food inflation has a direct impact on household budgets. However, it also raises concerns about farm incomes and rural demand, which could affect broader economic recovery.

 

Revisions to May Data

The government revised May 2025 WPI inflation upward to +0.13% YoY, based on updated data inputs. This revision reflects the dynamic nature of wholesale price tracking, which often undergoes recalibration as more granular information becomes available. The upward revision suggests that inflationary pressures were slightly stronger than initially estimated during that period.

 

Trend Analysis and Implications

India’s WPI inflation has remained in negative territory since March 2025, largely due to base effects and easing commodity prices. July’s figure continues this trend, though the pace of deflation appears to be slowing. The divergence between manufacturing inflation and the fuel/food indices highlights the sectoral imbalances in the economy.

 

Economists suggest that while deflation in wholesale prices may seem beneficial, it could also signal weak demand in certain sectors. Persistent deflation can hurt producer margins and discourage investment, especially if it reflects structural weaknesses rather than temporary price corrections.

 

RBI’s Policy Outlook

Although the Reserve Bank of India (RBI) primarily targets consumer price inflation (CPI) for its monetary policy decisions, WPI trends offer valuable insights into supply-side dynamics. The continued deflation in wholesale prices could provide the central bank with more flexibility to maintain its current interest rate stance, particularly if CPI remains within the target range.

 

However, policymakers will be cautious in interpreting WPI data in isolation. The RBI will likely monitor whether the deflationary trend in WPI translates into consumer-level price moderation, and whether it affects growth and employment metrics.

 

Looking Ahead

Key factors to watch in the coming months include:

While July’s WPI data reflects a mixed inflation landscape, it reinforces the narrative of gradual price normalization across India’s economy. For businesses, investors, and policymakers, the focus will now shift to whether this trend sustains—and how it aligns with broader macroeconomic indicators.

 

Sources: Ministry of Commerce and Industry, Reuters, Business Standard, Economic Times