Home >News >India >Wholesale inflation dips for third straight month
Wholesale food inflation, however, picked up marginally in June to 2% from 1.1% in May.
Wholesale food inflation, however, picked up marginally in June to 2% from 1.1% in May.

Wholesale inflation dips for third straight month

  • WPI inflation contracts 1.81% in June against a 3.21% contraction in May
  • In June, crude prices softened 41.4% y-o-y, while fuel prices also eased by 13.6% y-o-y

NEW DELHI : India’s wholesale price index inflation contracted for the third consecutive month in June, official data showed on Tuesday, even though the rate of deflation narrowed compared with the preceding month. The price of crude oil fell drastically during June, while manufacturers continued to lose pricing power as consumer demand waned amid the unfolding coronavirus pandemic.

Data released by the industry department showed that wholesale price index (WPI) inflation contracted 1.81% in June against a 3.21% contraction in May. During the month, crude petroleum prices softened 41.4% from a year ago, while fuel prices also eased by 13.6% from their levels a year earlier.

Ten out of the 17 categories of manufactured products listed in WPI including textiles, wood, chemicals and basic metals saw a contraction in prices as both demand and supply remained constrained due to coronavirus-related issues.

Wholesale food inflation, however, picked up marginally in June to 2% from 1.1% in the preceding month.

Retail price inflation released on Monday showed food inflation eased to a nine-month low of 7.87% in June while headline retail inflation at 6.09% released after a gap of two months came surprisingly higher than the pre-coronavirus print of 5.84% for March.

Aditi Nair, principal economist at Icra Ratings, said the divergence between food inflation at the wholesale and retail level remained substantial in June even after narrowing considerably, pointing to the continued varied dynamics driving food prices as the country emerges from the lockdown. “With vegetable prices rising sharply in the recent weeks, the uptick in wholesale food inflation may continue in July," she added.

Traditionally, retail and wholesale price inflation have followed different trajectories because CPI and WPI are two different sets of indicators with varied compositions. Manufactured items have the highest weight of 64.23% in WPI, while fuel group and primary articles have 13.15% and 22.62% weight, respectively. On the other hand, food and beverages have the highest weight of 54.18% in CPI, while services sectors such as health, education and amusement have a combined weight of 27.26%. However, retail food inflation often mimics wholesale food inflation with a lag as price rises are first reflected in the wholesale market before the retail market.

While retail inflation remains elevated above the upper limit of the tolerance level of the central bank, most analysts believe the Reserve Bank of India may continue to prioritize growth over inflation in the medium term and may further cut its policy rate in its monetary policy committee (MPC) meeting next month. The MPC has cut the policy rate cumulatively by 135 basis points between February 2019 and the onset of the pandemic.

“The smaller disinflation in the headline and core WPI, as well as a CPI inflation print in excess of the medium-term target range, are unlikely to outweigh growth concerns when the MPC deliberates on the course of monetary policy," Nair said.

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