WPI inflation eases from three-decade high, still above 15% in June; food prices to keep rising, say experts

India’s wholesale inflation eased slightly in June to 15.18% from a three-decade high of 15.88% in May. The wholesale price index (WPI) inflation cooled off on account of lower prices of manufactured and fuel items, even though food articles remained costly

WPI inflation eases from three-decade high, still above 15% in June; food prices to keep rising, say experts
While WPI inflation in June bucked the three-month rising trend, it remained in double-digit for the 15th consecutive month beginning April last year

India’s wholesale inflation eased slightly in June to 15.18% from a three-decade high of 15.88% in May. The wholesale price index (WPI) inflation cooled off on account of lower prices of manufactured and fuel items, even though food articles remained costly. Softening in prices of global commodities including crude and edible oils that are India’s key imports also aided in wholesale prices cooling off. While WPI inflation in June bucked the three-month rising trend, it remained in double-digit for the 15th consecutive month beginning April last year. Inflation in food articles was 14.39%, as prices of vegetables, fruits and potatoes witnessed a sharp spike over the year-ago period. Economists believe that food inflation will continue to inch higher in coming months amid rising vegetable prices.

Volatile crude prices, weakening rupee against dollar pose upside risk to WPI inflation number

“Wholesale inflation remained elevated above 15% for the third straight month in June driven by higher food and fuel prices. Sequentially, the wholesale price index was unchanged as moderation in manufactured products inflation on the back of the government’s supply-side measures and easing of global metal prices countered the higher food and fuel inflation. While the easing of many of the global commodity prices is a comforting factor, volatile crude oil prices and the weakening of rupee against dollar continue to pose an upside risk to the wholesale inflation number. Food inflation will continue to inch higher due to accelerating vegetable prices. Consequently, we expect WPI to remain in double-digits till the second quarter of this fiscal,” said Rajani Sinha, Chief Economist, Care Ratings.

WPI inflation to continue to moderate in coming months

“WPI inflation moderated in June, but remains at an elevated level. Easing in global commodity prices and the Indian government’s supply-side measures could aid in taming price pressures in the coming months. Wholesale price inflation surprised to the downside, easing to 15.2% y/y in June from the 30-year high of 15.9% in May. The moderation was driven by sequential price declines in manufactured products, which offset the rise seen in the food index, keeping the overall WPI index unchanged in June. WPI food prices continue to rise, led by the seasonal price rise in vegetable prices.” said Rahul Bajoria, MD & Chief India Economist, Barclays.

A series of supply-side measures undertaken by the government, including an export ban and import duty cuts are beginning to have an effect, as prices of wheat, edible oils are beginning to moderate, a trend that could continue in July given the recent declines in international commodity prices. “The price of domestic LPG declined sequentially in June, in line with international trends. The recent fall in several global commodity prices, including edible oils, precious and base metals, and select energy prices, if sustained, could also act as a moderating influence on headline inflation in the coming months. Manufacturing prices rose 9.2% y/y, while inflation in the fuel and power segment jumped to 40.4% y/y. Crude petroleum costs increased by 6.3% m/m in June, though this could start to reverse in the coming months,” he said.

Bajoria further said that prices of manufacturing products declined sequentially, falling 0.8% m/m, led by drops in the price of manufactured food products and the sharp declines in basic metals prices. “Given the early signs of reversal in international commodity price trends, we expect core WPI inflation to continue to moderate in the coming months,” he said.

Industry-level supply issues inching towards resolution

“While the WPI inflation eased out slightly to 15.18% in June in comparison to 15.88% in May, it remains at elevated levels mirroring the macroeconomic scenario across the globe. The most notable is an increase in the WPI food index from 10.89% in May to 12.41% in June, which indicates that the central government took the right call of banning wheat exports. On the other hand, the decline in manufactured product inflation indicates that industry-level supply issues are inching towards resolution,” said Mohit Ralhan, Managing Partner, TIW Capital Group.

“Increasing food prices across the globe have now become the major driver of inflation ahead of energy prices. Also, food production and supply have a longer cycle and therefore it may persist for more time. Given that India is a major food producer, it is much better placed to tide over this challenge. We continue to expect a higher level of inflation at least in this calendar year and therefore central banks around the world are likely to continue raising policy rates and even accelerate the same to keep the economy in balance,” he added.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Photos