July WPI in negative zone, but food prices rise

Our Bureau New Delhi | Updated on August 14, 2020

Wholesale price inflation (WPI) continues to be negative zone as it declined by nearly 0.6 per cent in July. This is contrary to recently released retail inflation based on consumer price index (CPI) which rose to nearly 7 per cent in July.

Interestingly, both the indices registered prices of food products as going up. Negative WPI inflation reflects producers’ woes as prices for them are not seen going up.

WPI inflation in June was at (-) 1.81 per cent, while for the months of May and April it was (-) 3.37 per cent and (-) 1.57 per cent respectively. Inflation in food articles in July stood at 4.08 per cent, as against 2.04 per cent in June. However, fuel and power basket inflation fell to 9.84 per cent in July, compared to 13.60 per cent in the previous month.

Sunil Kumar Sinha, Principal Economist at India Ratings, says this is the fourth consecutive month of deflation in wholesale prices.

One of the key reasons for subdued wholesale inflation is the depressed prices of manufactured items. Manufactured items have 64.2 per cent weight in the wholesale price index. The average inflation witnessed in the manufactured items during the past 12 months is -0.1 per cent due to the weak demand conditions in the economy.

Although the Covid-19 related countrywide lockdown was lifted in June, partial/local/regional lockdowns are still continuing, impacting the full demand and economic recovery. The wholesale and retail inflation though paint a contrasting picture and policy prescription, the nominal anchor for RBI is retail inflation.

The retail inflation in combination with recent industrial production data makes the emerging scenario even more complex due to the divergence in trend.

“While the industrial production data may support further easing of policy rate, retail inflation breaching RBI’s upper band of 6 per cent in seven out of last eight months may suggest otherwise. Ind-Ra believes RBI will watch inflation trajectory very carefully and in the interim would continue with the accommodative policy stance but pause on further rate cuts,” Sinha said.

Published on August 14, 2020

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