WPI inflation at -1.36% in July, stays in negative for fourth consecutive month

New Delhi: India’s wholesale price index remained in deflationary territory for the fourth consecutive month in July due to easing mineral oils, basic metals, chemical and textiles prices, even though food and vegetable prices surged.

The wholesale price index-based inflation saw a 1.36% contraction in July, according to data released by the commerce and industry ministry on Monday. WPI inflation contracted 4.12% in June and 3.48% in May. The WPI-based inflation stood at 13.93% in July 2022.

Economists polled by Reuters had estimated the wholesale price index for July to register a 2.70% fall.

Fuel and power prices saw the steepest decline, plunging 12.79% from a year earlier, compared with a 12.63% decline in June. In manufactured products, prices fell 2.51% in July, compared with a 2.71% fall recorded in the preceding month. However, food prices, driven by a sharp rise in vegetable prices, shot up 7.75% in July after falling 1.24% in June.

"The increase in price is mainly contributed by food products; machinery and equipment; computer, electronic and optical products; other non-metallic mineral products and electrical equipment etc.," the official statement said.

To put things in perspective, the month-on-month change in the food index stood higher by 7.13% while the all commodities index was up 1.95%. Vegetables inflation, part of the primary articles index, rose 62.12% in July after falling during the previous month.

"The wholesale price index (WPI) continued in a deflationary zone for the fourth consecutive month in July, helped by lower metals, chemicals, textile, manufactured food, and mineral oils prices. However, the pace of annualised decline in WPI slowed significantly compared with the previous two months, with the spike in food prices led by vegetables restricting the downside," said Rajani Sinha, Chief Economist at Care Ratings Ltd.

"If the food prices continue to trend upward, the deflationary trend could end, and WPI inflation could turn marginally positive in the coming months. Additionally, the uptrend in global crude oil prices, global edible oil prices, and uneven monsoon distribution domestically pose an upside risk to the outlook," Sinha added.

Sinha expects the WPI inflation for this fiscal at a subdued level --in the range of 1-2%-- with positive implications for the retail inflation trajectory.

Earlier this month, the Reserve Bank of India (RBI) had left the repo rate unchanged at 6.50% after terming the recent spike in vegetable prices to demand-supply mismatch.

India's consumer price inflation (CPI), or retail inflation, for the month of July, is expected to shoot up to a six-month high, thanks to surging prices of vegetables, cereals and pulses.

According to a Mint poll of 19 economists, India’s retail inflation might have hit a six-month high of 6.50% in July, sharply up from 4.81% in June. The official data is scheduled to be released Monday evening.

Since March, inflation has stayed under the 6% mark, even dropping to a 25-month low of 4.3% in May, before rising again in June.

Read more: Inflation likely rose to 6.50% in July; can a fresh spike in retail inflation upset the market?

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