WPI inflation declines to 15.18% in June

14 Jul 2022 , 12:43 PM

According to data provided by the commerce ministry on July 14, India’s inflation based on the Wholesale Price Index (WPI) decreased to 15.18 % in June.

The May WPI inflation rate of 15.88% was the highest in at least three decades. WPI inflation was 12.07 % in June 2021. In June, wholesale price inflation reached double digits once more, making it 15 consecutive months that it has been above 10%.

The WPI’s all-commodity index, which was 154.0 in May, remained constant in June, suggesting that inflationary pressures may be receding. Lack of change in the all-commodity index is a sign that prices are not gaining at a sequential pace.

The overall index did not change, but there were other underlying causes at play. As the food index increased 1.3 % month over month, the inflation rate for food increased to 12.41% in June from 10.89%.

In June, food-related cerels reported a consecutive drop in prices, with the index for wheat falling by 1.3 %. As anticipated, prices for vegetables rose sharply, with the index rising 16.5 %.

But manufacturing inflation decreased to 9.19 %, the lowest level in 15 months. This followed a sequential decline in the manufactured goods index of 0.8 %, the first such decline in six months. This contributed to a decrease in June’s WPI inflation overall.

Changes in manufacturing inflation often have a significant effect on overall inflation since manufactured goods make up 64.23 % of the WPI basket. Fuel and electricity, the other significant component included in the WPI basket, had a rise in the index of 0.7 % month over month.

The Consumer Price Index (CPI) inflation rate was practically constant at 7.01 % according to retail inflation statistics issued on July 12. This is why the WPI inflation rate dropped by 70 basis points from May to June. The headline retail inflation rate, which is more closely monitored, was 7.04 % in May.

Although the Reserve Bank of India’s (RBI) policy aim is expressed in terms of CPI inflation, wholesale prices might provide insight into how retail prices will develop in the future. However, unless CPI inflation declines significantly between July and September, the central bank is on pace to miss its inflation objective.

When average CPI inflation exceeds the 2—6% tolerance zone for three consecutive quarters, the RBI’s Monetary Policy Committee is regarded to have failed. CPI inflation has so far averaged 6.3 % from January through March and 7.3 % from April through June. The RBI is therefore just one quarter away from failing at this point. CPI inflation must average less than 6% from July through September in order to succeed. Retail inflation is expected to average 7.4% in the current quarter, according to the RBI.