Economy

Published: Dec 29, 2021
Updated: Dec 29, 2021

WPI IN JUNE

Wholesale inflation to remain in double digits

• The wholesale price-based inflation eased marginally to 12.07 per cent in June as crude oil and food items witnessed some softening in prices. However, WPI inflation remained in double digits for the third consecutive month in June, mainly due to the low base of last year. WPI inflation was at (-) 1.81 per cent in June 2020. In May 2021, the inflation was at a record high of 12.94 per cent.
• Experts say the continuing double-digit WPI inflation and its potential future spillovers into retail inflation could inject uneasiness into the tone of monetary policy and note that WPI is expected to remain at an elevated level till October 2021. Snapping the five straight months of uptick, WPI-based inflation in June softened as prices of food articles and crude oil eased, even though manufactured products hardened. The annual rate of inflation was 12.07 per cent for the month of June 2021 (over June 2020) as compared to (-) 1.81 per cent in June 2020.
• “The high rate of inflation in June 2021 is primarily due to a low base effect and rise in prices of mineral oils, viz., petrol, diesel (HSD), naphtha, ATF, furnace oil, etc, and manufactured products like basic metal, food products, chemical products, etc, as compared to the correspondsing month of the previous year,” the Commerce and Industry Ministry said. Highlights:
• Inflationary trend in primary articles (weightage of 22.62% in the WPI basket) has continsued for the fifth consecutive month. The inflation in this segment has eased to 7.7% in June 2021 compared with 9.6% in May 2021 and -0.1% in June 2020. The inflation in food segment has moderated during the month while inflation in the non-food segment has inched up.
• Inflation in the food group has weakened to 3.1% in June 2021 from 4.3% in the previous month and 2.1% in the corresponding month last year.
• The deflationary trend in cereals stood at -2.7% in June 2021 compared with -2.5% in May 2021 and 2.7% inflation in June 2020. This has been the 11th successive month of deflastion in cereal prices on the back of robust production. Inflation in prices of paddy has hit a 68-month low of -2.4% over -0.5% in the previous month. Inflation in vegetables has fallen for the 7th successive month. The deflation in vegetable prices was at -0.8% during the month compared with -9% in the previous month and -9.2% in the corresponding month last year.
• Inflation in fruits eased to 5.6% in June 2021 compared with 20.2% in May 2021 and 2.3% in June 2020.
• Prices of potatoes have fallen to -31% in June 2021 and they have been in deflation since January 2021. Wholesale prices of onions have been largely unstable, fluctuating between positive and negative inflation. In June 2021, inflation in onion prices shot up to 64.3%, higher than 23% in May 2021 and -15.3% in June 2020.
• Non-food articles in June 2021 witnessed an inflation of 18.7% compared with 18.4% in the previous month and deflation of 2.8% in the corresponding month last year. The inflation in the fuel & power segment has cooled to 32.8% in June 2021, lower than 37.6% in the previous month. However, it was higher than the deflation of 16.2% in the corresponding month last year. The firmness in international crude oil prices and skyrocketsing domestic fuel prices have kept the inflation in this segment elevated. The inflation in manufacturing segment in June 2021 remained unchanged at 10.9% comspared with 10.8% a month ago. However, it was higher than the subdued inflation of 0.1% in the corresponding month last year. The inflated factory gate prices reflect the firm pricing power of manufacturers.
• Prices of basic metals (comprising the highest weightage of 9.65% in the WPI index) rose to 28.9% in June 2021 compared with 27.6% in May 2021 and -4.5% in June 2020. Inflation in manufactured food products (weight of 9.12 in the WPI basket) stood at 13.4% in June 2021 compared with 15.2% in the previous month and 5.1% in the corresponding month last year.
• All industries except tobacco have recorded positive WPI during the month and eight out of fourteen industries have recorded double-digit inflation growth. Fabricated metal products except machinery & equipment (11%), basic metals (28.9%), chemical & chemical products (10.7%) and textiles (13.9%) have witnessed notable and higher WPI growth compared with the previous month.

OIL PRICE EFFECT

According to CARE Ratings, inflation in the fuel and power segment has showed signs of easing during the month. However, rigidity in international and domestic oil prices, improving pricing power of manufacturers and a low base of last year are likely to keep inflation at elevated levels in the near term in the double-digit range. ICRA Chief Economist Aditi Nayar said the headline WPI inflation is expected to continue to soften, while remaining in double digits in the September quarter. “With the CPI inflation likely to have peaked, we expect policy normalisation to commence in Q4 FY2022, after the growth revival solidifies,” Nayar said.

Industry chamber PHDCCI President Sanjay Aggarwal said significantly high fuel and power inflation is escalating the input costs of the industry and its competitiveness in the domestic and international markets. “At this juncture, we urge the government to consider petroleum products in the ambit of GST to rationalise the prices and to contain the rising inflation,” Aggarwal added. India Ratings and Research Principal Economist Sunil Kumar Sinha said firming of inflation despite weak demand conditions needs some elaboration. “It appears that a large part of the rise in inflation could be attributed to imported inflation. As global commodity prices are a pass-through in the Indian economy, price increases in mineral oils, crude petroleum, minerals and basic metals are finding a reflection in the wholesale inflation,” he said. India Ratings and Research believes that wholesale inflation will remain elevated till October 2021.