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Wholesale Price Index (WPI) inflation dropped for the second consecutive month to 11.16 per cent in July. It was at little over 12 per cent in June.
Experts feel that although the rate of inflation has peaked, it will continue to be in double digits for a few months at least. This means the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is unlikely to get any comfort on this front and the possibility of inflationary expectation during the festival season will not provide any cushion for interest rate revision.
According to the office of the Economic Advisor in the Department for Promotion of Industry and Internal Trade (DPIIT), the high rate of inflation in July 2021 is primarily due to the low base effect and rise in prices of crude petroleum and natural gas, mineral oils, manufactured products like basic metals, food products, textiles, chemicals and chemical products as compared the corresponding month of the previous year.
Contributing factors
Aditi Nayar, Chief Economist with ICRA said that softening of food price pressures, the uncertainty related to the Delta plus variant and arresting the rise in commodity prices have had an impact on overall rate of inflation. Although the monsoon rains have been a considerable 32 per cent below normal in August 2021, kharif sowing has gathered pace and the gap with the year-ago level has eased to 1.8 per cent as of August 13, from 4.7 per cent two weeks earlier.
“Late sowing will boost acreage, although the uneven rainfall may not be supportive of a rise in yields. With rising tomato prices posing some concern, we expect the wholesale food index to record a mild inflation in August 2021, before slipping into disinflation for the next few prints, aided by the base effect,” she said.
The average international crude oil price, in Indian basket terms, has declined by 3.4 per cent to $71/barrel during August 1-11 from $73.5/barrel in July 2021, after OPEC and others agreed to gradually increase the supply from August 2021. Moreover, the uncertainty regarding the spread of the Delta variant across the globe has contributed to lower crude oil prices.
“The headline WPI inflation is expected to remain in double-digits until October and therefore its softening over the last two months is unlikely to provide any material comfort to the monetary policy committee,” she said.
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