Wholesale inflation eases to 15.1% in June

Producers’ inflation based on Wholesale Price Index (WPI) dropped to 15.1 per cent in June against 15.9 per cent in May, the Ministry of Commerce and Industry said in a release on Thursday.

On Tuesday, the Statistics Ministry had said the retail inflation based on Consumer Price Index (CPI) slide a tad to 7.01 per cent in June from 7.04 per cent in May.

Notably, the WPI and CPI were above 15 per cent and 7 per cent, respectively during the last three months.

What the government says

“The high rate of inflation in June 2022 is primarily due to rise in prices of mineral oils, food articles, crude petroleum & natural gas, basic metals, chemicals & chemical products, food products, etc. as compared to the corresponding month of the previous year,” Office of Economic Advisor in the Department for Promotion of Industry and Internal Trade said while releasing the data.

High food, fuel prices to blame

According to Rajani Sinha, Chief Economist, Care Ratings, the WPI remained above 15 per cent for the third straight month on the back of high food and fuel prices.

The index, however, remained unchanged on a sequential basis as a result of moderation in manufactured products inflation due to the government’s supply-side measures and easing of global metal prices.

“While the easing of many of the global commodity prices is a comforting factor, volatile crude oil prices and the weakening of rupee against dollar continue to pose an upside risk to the wholesale inflation number. Food inflation will continue to inch higher due to accelerating vegetable prices. Consequently, we expect WPI to remain in double-digits till the second quarter of this fiscal,” she added.

Softening core inflation

Aditi Nayar, Chief Economist, ICRA, pointed out that core inflation declined by 0.7 per cent in month-on-month terms after raising for 24 consecutive months. The fall also dragged the YoY core inflation to single digits (9.3 per cent in June 2022) after a gap of 13 months, she added. 

Nayar further said minerals and basic metals displayed a sharp MoM correction in June 2022, as fears of an impending global recession unfolded, dampening commodity prices.

Relief in sight

With the spike in the US inflation, the US Fed is likely to opt for an aggressive monetary tightening which will fuel the global slowdown fears and further soften the commodity prices.

In India, this should translate into lower WPI, with a relatively slower transmission to the retail inflation.

“In our view, while rate hikes in the US may be sharp and front-loaded, they may end sooner than expected by the markets, if the recent downtrend in global commodity prices sustains. We expect the WPI inflation to ease to nearly 13 per cent in July 2022, reflecting the ongoing correction in global commodity and fuel prices as well as domestic food prices,” she said while expecting a cumulative 60 bps of rate hike by the MPC over the next two reviews, taking the repo rate to 5.5 per cent by September 2022.

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