Millennium Post

Wholesale price inflation rises for 3rd straight month in June

Costlier vegetables, pulses and sugar pushed up WPI inflation for the third straight month in June to 1.62 per cent, queering the pitch for the Reserve Bank of India (RBI) to reduce interest rates in its August policy meet. 

The wholesale price-based inflation, reflecting the annual rate of price rise, during June was also substantially higher than the 0.79 per cent recorded in May and (-)2.13 per cent in June 2015. Wholesale price index (WPI) inflation in vegetables shot up by 16.91 per cent last month. While, inflation print for cereals stood at 6.32 per cent. Potato, a daily consumable among Indian households, turned pretty expensive during the month as buyers had to shell out 64.48 per cent more than a year ago.

Among others, the rate of price rise in pulses was at 26.61 per cent, sugar 26.09 per cent and that for fruits the inflation during the month rose by 5.97 per cent. Overall food inflation was at 8.18 per cent, showed the data released by the Commerce Ministry. WPI inflation has been firming up for the last three months, after remaining in the negative zone for around one-and-a-half-years. An elevated wholesale inflation in June follows spike in retail inflation, announced on Tuesday, that hit a 22-month high of 5.77 per cent during the month.

But, onion, minerals, fuel and power, and petrol became pocket friendly as prices declined by 28.60 per cent, 20.75 per cent, 3.62 per cent and 8.74 per cent, respectively. Among manufactured articles, the wholesale inflation print read at 1.17 per cent in June and that for edible oils it firmed up by 3.42 per cent.

"A jump of 37.4 per cent in cereals inflation between May and June is a cause of worry. Although monsoon is expected to be above normal this year but some delay in its reaching in many parts of country delayed the sowing kharif crop," said an expert.

"The RBI would not be in a position to address the demand and supply in India when CPI is at high level, therefore now the economy of India is in need of strong actions from the Government to address the structural issues of demand and supply," industry body Assocham said. 

India Ratings Principal Economist Sunil Kumar Sinha said pick-up in wholesale inflation is mainly driven by rise in food inflation. The rise in wholesale inflation is in line with expectations and is essentially on the back of rising food prices along with some catch up in commodity prices, Richa Gupta, Senior Economist at Deloitte, said.

"Going ahead, expect inflation to move up further from current levels but remain capped on the back of subdued global commodity prices," she added.

Retail inflation to cross 6% before easing from September, says Study
Retail inflation is likely to cross the 6 per cent level over next two months but will ease thereafter as food prices abate and the base effect normalises, says a report. According to global financial services major HSBC, the inflation based on Consumer Price Index is expected to cross the 6 per cent year-on-year mark over the next two months, and would ease to 5 per cent from September onwards. 

"We expect headline CPI inflation to cross the 6 per cent y-o-y mark over the next two months, thanks to a low base from last year. However, inflation is likely to take a turn towards RBI's target of 5 per cent from September onwards as food prices abate (if rains pick up) and the base normalises," HSBC said in a research note.

"We remain skeptical whether softening in core prices will continue", it said, adding that margin pressures faced by firms could eventually make their way to inflation if they decide to pass on higher input prices. On monsoon and its impact on inflation, HSBC said the good news here is that rains have improved from an 11 per cent deficit in June to a 1 per cent surplus in early July. "Rains over the rest of July will be critical in determining the trajectory of food inflation," it added.

HSBC said an action-packed July will determine the future trajectory of several variables. "The rest of July is likely to be action-packed, with a slew of events and data (announcement of the new RBI governor, Parliament session, rains) that will impact the economy for a long time to come," it said. 
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