Wholesale inflation cools to a three-month low in July on lower food prices

India's wholesale inflation, which surged to a 16-month high in June, cooled in July on low food prices and primary articles, showed provisional data released by the ministry of commerce and industry on Wednesday.

The wholesale inflation, which stood at 3.36% in June, fell to 2.04% in July, the lowest in the last three months.

Economists polled by Reuters had expected it to be 2.39% during the month.

The Wholesale Price Index (WPI), a proxy for producers' prices, has been positive since November 2023. A year ago, it stood at -1.23%.

Food inflation, a major contributor to the index, fell to 3.55% in July after climbing to 8.68% in June from 7.75% in May.

Also Read: A statistical illusion? How India’s inflation fell to a 5-year low in July

The decline was led by a let up in vegetable prices by 8.93% annually during the month, compared to a 38.76% rise in June.

While the prices of cereals, paddy, pulses, vegetables and onion fell in July, the prices of wheat, potato, fruits, milk, eggs, fish and meat rose during the month.

Non-food articles, too, saw a price decline of 2.90% in July, higher than the 1.95% decline reported in June.

Fuel and power prices rose 1.72%, compared to a 1.03% rise in June.

Crude petroleum and natural gas prices rose by 9.12%, compared to the 12.55% rise in June.

Manufactured products' prices rose by 1.58%, compared to 1.43% in June.

Is a further rise expected in prices?

According to experts, the near-term outlook for WPI inflation remains benign as the prices of major food items have dipped sequentially in August amid a pick-up in the monsoon and a healthy progression in Kharif sowing, which will aid in containing the base effect-led uptick in primary food articles' inflation print in July.

Also Read: Why food inflation cannot be excluded from target inflation

"Moreover, global commodity prices have declined sharply over the past few weeks to touch the lowest levels in three years amid rising recessionary fears in the US. Additionally, the prices of the Indian basket of crude oil have slumped by about 7.2% month-on-month till 13 August, which would also exert downward pressure on the WPI inflation print for the month," said Rahul Agrawal, senior economist, Icra Ltd.

"Notably, the core (non-food manufacturing) WPI continued to inch up for the fifth consecutive month, touching a 17-month high of 1.2% in July 2024, even as the index contracted sequentially for the second consecutive month," Agarwal added.

Icra expects the WPI inflation to remain at about 2% in August.

The outlook for retail inflation

Retail inflation based on the Consumer Price Index (CPI) rose to 3.54% in July, its lowest in 59 months, primarily due to the easing of food prices, according to data from the ministry of statistics and programme implementation (MoSPI) released earlier this week.

The rise in food inflation at 5.42% in July was the lowest since June 2023, when it was 4.55%.

Retail food inflation stood at 9.36% in June, 8.69% in May and 8.70% in April.

To be sure, some economists said the fall in inflation could be one-off.

Retail inflation has been below the 6% mark since September 2023, remaining within the Reserve Bank of India's 2-6% tolerance range for 11 consecutive months.

Also Read: Should RBI target core inflation instead of retail? Perish the thought.

Core inflation—goods and services excluding the more volatile food and energy prices—makes up nearly 50% of the basket.

“The future trajectory of the WPI-based inflation will largely depend on the performance of manufactured products, which are beginning to show positive movement from a low base," said Sujan Hajra, chief economist and executive director, Anand Rathi Shares and Stock Brokers.

"Overall, we expect the WPI inflation to inch up in the near term,” he added.