Wholesale price inflation hit a five-month low of 13.93% in July, having eased from 15.18% in June and an over 30-year high of 16.63% in May, but still remained stubbornly elevated.
With global prices of commodities, especially oil, easing in recent weeks, inflation, based on the wholesale price index (WPI), is set to moderate further in August to anywhere between 12% and 13.6%, some analysts reckon. A conducive base, too, will help. However, the moderation is expected to be gradual, as a weak rupee has made imports more expensive. Much will also hinge on the progress and distribution of monsoon showers. Nevertheless, given that price pressure is still much above the trend level, the central bank will resort to a fourth round of rate hike in October, albeit at a lower rate.
The latest drop in WPI inflation mirrored a marginal easing of price pressure at the retail level as well (the consumer price-based inflation, too, hit a five-month low of 6.71% last month). However, the divergence between the two gauges, partly caused by different compositions, still remains too high, indicating that the pass-through of elevated input costs to product prices is far from over.
With this, WPI inflation has remained in double digits for 16 months now, which has been driven essentially by high global commodity prices, especially in the wake of the Ukraine war in February. As such, at 15.48%, the WPI inflation in the June quarter stood at a historical high.
Interestingly, part of the slowdown in inflation in the manufactured goods segment over the past two months can be attributed to two segments — basic metals and vegetable oils. The basic metals saw the direct or indirect impact of export duties on steel imposed by the government in late May. Similarly, the government’s move in May to allow duty-free imports of 4 million tonne (mt) of sunflower and soya oils until FY24 seemed to be yielding results.
Data released by the industry ministry on Tuesday showed WPI inflation in basic metals eased to 11.12% in July from 12.09% in June, while inflation in vegetable oils dropped to just 4.20% from 12.36%. In fact, manufactured food product inflation eased to a 17-month low of 7.2%. Overall manufacturing inflation slowed for a third straight month to 8.16% in July from 9.19% in the previous month, although it still remained sticky. Core WPI inflation, too, hit a 16-month low of 8.4%.
Still, the easing of WPI inflation in July was triggered by the moderation in manufactured products as well as food inflation, which offset the sequential rise in price pressure in fuel. Even primary food inflation dropped to 10.77% in July from 14.39% in the previous month, as rates of vegetables, eggs, milk and fish rose at a slower pace. However, inflation in wheat rose to 13.61% from 10.34%. Fuel inflation rose to 43.75% in July from 40.38% in the previous month; this may, however, reverse in August.
Icra chief economist Aditi Nayar said the drop in core WPI inflation for a third straight month reflects a combination of a correction in global commodity prices amid fears of a global slowdown, as well as a favourable base. “Overall, the WPI inflation is likely to moderate to ~13% in Q2 FY23 from the multi-quarter high 15.7% in Q1 FY2023, before dipping to single-digits in Q3 FY23, after a gap of 18 months,” she said.
Economists at India Ratings expected WPI inflation to ease to 13.6% in August. The expected marginal drop in inflation is due to the fact that while global commodity prices have cooled off somewhat in the recent months due to the recessionary concerns in developed countries and the Covid-led slowdown in China, they still remain higher than the pre-war levels, they reckoned.