WPI inflation sinks to near eight-year low of minus 4.12% in June

Third straight month of dip in inflation, mainly due to high base and moderation across all three major components

inflation, wpi, wholesale price index, economy, prices, commodities, electricity, consumption

Shiva Rajora New Delhi

Listen to This Article

India’s Wholesale Price Index (WPI)-based inflation remained in negative territory for the third consecutive month in June, falling to a nearly eight year low of -4.12 per cent, from -3.48 per cent in May, data released on Friday by the Ministry of Commerce and Industry showed.

The continuing disinflation in the factory gate inflation comes on the back of a high base effect and due to a fall in prices of mineral oils, food products, basic metals, textiles and crude petroleum & natural gas.

Earlier, the wholesale inflation was 16.23 per cent in June 2022.

Data showed that the contraction in prices of manufactured goods (-2.71 per cent) continued in June, as compared to -2.97 per cent in May, led by a deceleration in the price rise of beverages (1.87 per cent), textiles (9.51 per cent), leather (1.31 per cent), pharma (2.43 per cent), paper products (-7.38 per cent), chemicals (-6.74 per cent), rubber (-3.20 per cent), and cement (-1.22 per cent).

Rajani Sinha, chief economist, CARE Ratings, says that this was the steepest contraction annually, witnessed in about eight years due to continued easing of energy, chemicals and metal prices.

“Weak economic data from China is keeping the global commodity prices low, which in turn is supporting moderation in WPI inflation,” she added.

Besides, the data showed sharp sequential uptick in the prices of primary articles (0.57 per cent) in June from -1.41 per cent in May, mainly led by an acceleration in the price rise of cereals (8.34 per cent), paddy (7.67 per cent), wheat (9.02 per cent), milk (8.6 per cent), egg & meat (2.74 per cent) and pulses (9.21 per cent). Meanwhile, there was a sequential contraction in the price rise of vegetables (-21.9 per cent), potato (21.3 per cent), onion (-4.3 per cent) and fruits (-0.9 per cent).

Devendra Pant, chief economist, India Ratings said the worrying trend in WPI was in cereals inflation, similar to retail inflation, as after declining for four months, it saw an uptick in June due to concerns regarding the progress of monsoon in the month.

Meanwhile, the prices for fuel and power saw sharp contraction to -12.63 per cent, from -9.17 per cent in May, on the back of continuing contraction in the prices of liquefied petroleum gas (-22.3 per cent), petrol (-16.32 per cent), and high-speed diesel (-18.6 per cent).

The continuing disinflation in wholesale prices comes on the back of surging consumer price index (CPI) based retail inflation, as it reversed its four-month downward trend in June on Wednesday, on account of surging food prices, prompting analysts to predict an extended pause on policy rates.

Although the RBI tracks retail inflation for its monetary policy decisions, the contraction in WPI index is likely to have a moderating impact on CPI inflation with a time lag, as the divergence between retail and wholesale price inflation has now increased to 893 basis points (bps) in June from a meagre 24 bps in November last year.

“The importance of WPI is more for the behaviour of GDP deflator, which in 1QFY24 is likely to have a slower growth, as both wholesale and retail inflation have slowed down both sequentially as well as annually. This means that real GDP growth in 1QFY24 would be similar to the nominal GDP growth,” says Pant.


First Published: Jul 14 2023 | 6:40 PM IST

Explore News