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Factory inflation based on Wholesale Price Index (WPI) slipped further in contraction zone and touched (-) 4.12 per cent in June mainly on account of fall in prices of food products and others, date released by Commerce & Industry Ministry said on Friday.
Latest declined pushed the factory inflation to eight years low. This rate of inflation was (-) 3.48 per cent in May and 16.23 per cent in June last year.
Fall in WPI is contrary to retail inflation based on Consumer Price Index (CPI) which rose to 4.8 per cent in June on account of a less supportive base and the onset of the spike in vegetable prices. Experts feel with rise in food prices, especially vegetable and sustained higher prices of cereals, will push the factor inflation upwards. With both indicators on rise, the Monetary Policy Committee (MPC) led by RBI Governor likely to extend pause for some more reviews.
Talking about decline in factor inflation, the Ministry said it was “Primarily due to fall in prices of mineral oils, food products, basic metals, crude petroleum & natural gas and textiles.” Inflation in food articles declined to (-) 1.24 per cent in June against (-) 1.59 per cent in May, the Commerce and Industry Ministry said in a release on Friday. Fuel and power basket inflation eased to (-) 12.63 per cent in June from (-) 9.17 per cent in May. In manufactured products, the inflation rate was (-) 2.71 per cent in the month under review against (-) 2.97 per cent in May.
Dheer Shah, CFO with BDR Pharma said that the slide in the WPI inflation continued in June as it softened further in the negative territory and touched nearly near an 8-year low. The ease is primarily due to primary goods, basic metals, and textiles. Though food inflation is inching up. The WPI is on a divergent track as retail inflation is showing signs of a rise due to unseasonal rains and supply bottlenecks for vegetables and perishable items.
“We expect the retail as well as the wholesale inflation to rise in the remaining monsoon months. Prices at sustainable levels are key to industrial traction. A persistent rise in inflation may lead to rethink by the central bank on their policy status quo,”
Mohit Ralhan, Chief Executive Officer TIW Capital says the fuel price drop was on a high base last year while the decline in manufactured prices was because of a dip in edible oil, textile, and chemical & chemical products prices. However, food article prices inched higher on a sequential basis. The vegetable price index witnessed a more than 10% jump from May to June. “The deflation in the manufacturing price index could be a cause of concern as it usually indicates weaker economic activity in the future. Meanwhile, a jump in vegetable prices will be keenly tracked by the RBI as it might hurt the CPI trajectory going ahead,” he said
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