WPI hits 54-month high, jumps to 5.77% in June

The producer’s inflation zoomed to a 54-month high in June, Government data revealed on Monday. This inflation, popularly known as Wholesale Price Index (WPI), stood at 5.77 per cent in June as against 4.43 per cent for May.

WPI follows retail inflation (CPI), which rose to a five-month high of 5 per cent in June, while industrial production slipped to 3.2 per cent in May, Now, both key inflation indices are rising, and the possibility of the RBI’s Monetary Policy Committee considering another rate hike at its next policy meeting, is high. The committee is to meet under the Chairmanship of RBI Governor Urjit Patel early next month.

Aditi Nayar, Principal Economist at ICRA, said the lagged transmission of higher crude oil prices, an uptick in cotton prices and electricity tariffs, the hardening of inflation for manufactured products as well as an unfavourable base effect, led to a sharp pickup in WPI inflation. An unfavourable base effect as well as a revision in electricity tariffs, and prices of ATF, LPG, naphtha and furnace oil, contributed to the considerable rise in inflation for fuel and power to 16.2 per cent in June from 11.2 per cent in May. 

The Government statement said the index for ‘Mineral Oils’ group rose by 3.5 per cent due to the higher price of furnace oil (10 per cent), ATF (7 per cent), LPG and naphtha (6 per cent each), bitumen (3 per cent), HSD, petrol and kerosene (2 per cent each) and petroleum coke (1 per cent). Similarly, the index for the ‘Electricity’ group rose by 4 per cent due to the higher price of electricity (4 per cent).

The core WPI inflation rose to a modestly higher than expected 4.75 per cent in June, led by basic metals, fabricated metal products, chemicals, rubber, pharmaceuticals, textiles and leather, reflecting the impact of higher commodity prices and a weakening of the rupee. Primary food inflation recorded a mild uptick to 1.8 per cent in June 2018 from 1.6 per cent in May 2018, on account of vegetables, cereals, and condiments and spices, even as the inflation for fruits underwent a sharp correction, led by mangoes and lemons. 

According to Nayar, while the outlook for WPI inflation would be influenced by commodity prices, INR movement, effectiveness of MSPs and the dispersion of the monsoons, an easing of the base effect should cool WPI inflation for July to some extent. “The sharper than expected uptick in WPI inflation in June reinforces our expectation of a likely repo rate hike at the next MPC meeting in August 2018," she said. 

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