Wholesale price index (WPI) inflation remained in the negative zone for an eighth straight month, easing to -2.40% in June from -2.36% in the previous month.
The latest inflation figure is just above a revised -2.43% for April, when it had crashed to its lowest in the current inflation series, with food inflation slowing down consistently since January despite concerns about monsoon.
The WPI data, released on Tuesday, further widened a gulf with the consumer price index (CPI) inflation — the latter scaled a nine-month peak of 5.4% in June. While the WPI food inflation rose to 2.88% in June from 3.80% in the previous month, the CPI food inflation rose almost 0.7 percentage point from May to touch 5.48% in June.
Even the core WPI inflation plunged further to -0.9% in June, compared with -0.6% in the previous month, while the CPI core inflation rose to 4.8% in June from 4.6% in May. WPI inflation in manufactured products eased to -0.77% in June from 0.64% a month before.
The further drop in the core WPI suggests a rebound in demand is still elusive, although low commodity prices globally have also contributed to it. The core WPI had hit the negative territory in March after a gap of 65 months, but analysts believe the central bank may not read too much into it due to its stated policy focus on the CPI.
However, the 1.42% build-up in inflation since March suggests some price pressure still exists at the wholesale level. On a month-on-month basis, the WPI inflation also rose 0.5% in June from the May level.
Apart from the different composition of the two price gauges, the wide divergence has been mainly triggered by the huge difference between the levels of fuel inflation in both the benchmarks.
While fuel and power inflation in the CPI touched 5.92% in June, it was -10.03% in the WPI for the month. This is because while the WPI reflects the low global crude oil prices, the CPI tracks the deregulated domestic prices of petrol and diesel. The difference in core inflation in the two gauges is also partly due to higher price rise in services that are captured in the CPI but not in the WPI.
Analysts have said the up-tick in the CPI inflation in June and the slowdown in monsoon showers from their June peaks has reduced the scope for a rate cut by the Reserve Bank of India (RBI) in its next monetary policy review meeting in August.
While trimming the benchmark lending rate by 25 bps in June, the third time in 2015, RBI governor Raghuram Rajan had termed the monsoon as the “biggest uncertainty” facing the economy and raised the bank’s retail inflation target by 20 bps to 6% by January 2016.
Despite the drop in WPI food inflation, aided by lower vegetable prices, pulses inflation shot up to 33.67% in June from 22.84% in the previous month on fears of a worsening scarcity of the commodity in view of a 10% drop in production in 2014-15 and erratic weather. The Met office’s forecast of a rainfall deficit of 8% in July and 10% in August also reflects risks to food inflation.
However, the silver lining is that monsoon rain until Monday was just 3% below the benchmark normal average and water reserves were 19% higher than the normal level up to July 9. Official granaries are brimming with rice and wheat stock and the government has effected modest hikes in the minimum support prices of crops. Prices of several commodities, including edible oils, continue to remain depressed in the global market, which would help tame inflationary pressure.
“The further decline in the average price of the Indian crude oil basket to $58.4/barrel so far in July from $63.8 in May and $61.7 in June 2015, as well as the fall in retail prices of various fuels, would ease the month-on-month pressure on the minerals and fuel and power sub indices to an extent in the ongoing month. ICRA expects WPI inflation to remain sub-zero in the ongoing quarter,” said Aditi Nayar, senior economist at ICRA.