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Business News/ Economy / Wholesale prices sink deeper into deflationary zone

New Delhi: India’s wholesale price index plunged deeper into deflationary territory in June, even as retail prices, especially food and vegetables, surged, official data showed.

The wholesale price index experienced a 4.12% decline in June, driven by lower prices of fuel, textiles, and some food products, according to data released by the commerce and industry ministry on Friday. This decline follows a 3.48% fall in May, marking the third consecutive month of wholesale deflation. The WPI-based inflation stood at 16.23% in June 2022.

Fuel and power prices saw the steepest decline, plunging 12.63% from a year earlier, compared with a 9.17% decline in May. In manufactured products, prices fell 2.71% in June, compared with a 2.97% fall recorded in the preceding month. Food prices fell 1.24% in June compared with 1.59% in the previous month.

WPI Data
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WPI Data

“The decline in the rate of inflation in June is primarily due to the fall in prices of mineral oils, food products, basic metals, crude petroleum and natural gas and textiles," the official statement said.

Economists said wholesale prices declined in June due to broad-based moderation in prices.

“This was the steepest contraction (annual) witnessed in about eight years, helped by continued easing of energy, chemicals and metals prices. Weak economic data from China is keeping the global commodity prices low, which in turn is supporting moderation in WPI inflation," said Rajani Sinha, chief economist at Care Edge, Care Ratings Ltd.

“The sharp sequential uptick in food prices due to vegetables, milk, pulses and cereals is concerning. Nonetheless, given the higher weightage of energy and manufactured products in the WPI basket, we expect WPI inflation to remain in the contractionary zone in the first half of FY24. Contraction in the WPI index is likely to have a moderating impact on CPI inflation with a lag," Sinha added.

In a report on Friday, IDFC First Bank said the decline in industrial raw material costs is now outpacing the decline in output prices (core inflation) after a gap of two years.

“Industrial raw material costs are lower by 8% y-o-y (year on year) in May, indicating that producer margins could improve further in Q1FY24," the report added.

While WPI can serve as an indicator of the expected behaviour of retail inflation, it is not tracked by the Reserve Bank of India (RBI).

Interestingly, retail inflation during June leapt to a higher-than-expected 4.81%, driven by rising food and vegetable prices.

While the retail inflation number has remained within the central bank’s upper tolerance band of 6%, it is still above 4%, the midpoint of the RBI’s 2-6% medium-term target.

Earlier this month, the Reserve Bank of India (RBI) had left the repo rate unchanged at 6.50% for the second consecutive monetary policy amid easing inflation headline inflation.

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Updated: 15 Jul 2023, 01:42 AM IST
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