A labourer lies down atop goods ready for transportation at a wholesale market in New Delhi. (AP Photo/Altaf Qadri)
India’s inflation based on the Wholesale Price Index (WPI) declined to 15.18 percent in June, according to data released by the commerce ministry on July 14.
The WPI inflation was 15.88 percent in May, the highest in at least three decades. In June 2021, it stood at 12.07 percent.
Another month of double-digit wholesale price inflation in June means the wholesale prices have remained above the 10-percent mark for 15 months in a row.
The latest data, however, shows signs of easing inflationary pressures, with the all-commodity index of the WPI staying unchanged in June from May’s 154.0.
A lack of movement in the all-commodity index is indicative of no sequential momentum in prices.
While there was no movement in the overall index, there were disparate underlying forces. Food inflation rose to 12.41 percent in June from 10.89 percent, with the food index rising 1.3 percent month-on-month.
Within food items, cereals posted a sequential decline in prices in June, with the index for wheat down 1.3 percent. Vegetables, as expected, saw a sharp spike in prices, driving the index up 16.5 percent.
On the other hand, manufacturing inflation fell to 9.19 percent – the lowest in 15 months. This came on the back of a 0.8 percent sequential fall in the index for manufactured products – the first such fall in six months. This helped drag the overall WPI inflation down in June.
Since manufactured products account for 64.23 percent of the WPI basket, changes in manufacturing inflation tend to have a large impact on overall inflation.
The index for the other major group of the WPI basket, fuel and power, increased by 0.7 percent month-on-month.
The 70-basis-point fall in WPI inflation in June from May comes after data released retail inflation data released on July 12 showed Consumer Price Index (CPI) inflation was largely unchanged at 7.01 percent in June.
The more closely tracked headline retail inflation had come in at 7.04 percent in May.
While the Reserve Bank of India’s (RBI) policy target is spelt out in terms of CPI inflation, wholesale prices hold clues for the future trajectory of retail prices. However, the central bank is on track to miss its inflation mandate unless CPI inflation falls drastically in July-September.
The RBI’s Monetary Policy Committee is deemed to have failed when the average CPI inflation is outside the 2-6 percent tolerance band for three consecutive quarters. The CPI inflation averaged 6.3 percent in January-March and 7.3 percent in April-June. As such, the RBI is now only one quarter away from a failure in policy stance. For it to avoid failure, the CPI inflation must average less than 6 percent in July-September.
The RBI has forecast that retail inflation will average 7.4 percent in the current quarter.