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June WPI inflation drops to 11-month low as food prices ease

June WPI at 0.90%, down from 2.17 % in May, fuel inflation continues to decline for 5th month

Subhayan Chakraborty  |  New Delhi 

vegetables, inflation, mandi
The steep drop in prices can be tied to the growing farmers' agitation movements across large parts of Madhya Pradesh and Rajasthan, where farmers have complained of incomes crashing due to the fall in prices of their crops.

Inflation based on the (WPI) slipped to a 11-month low of 0.9 per cent in June, as food inflation remained negative and prices of manufactured items rose at their weakest pace in 11 months.

The slowing in wholesale inflation comes against the backdrop of retail inflation easing to a record low of 1.54 per cent in June. As a result, expectations from the Reserve Bank of India (RBI) to reduce its lending rate ('repo') at its next Monetary Policy Committee meeting in early August, has again peaked from economists and business alike.

The has been on a downward trend since February and had stood at a five-month low of 2.17 per cent in May. Official data released on Friday showed that in June it was forced even further down, by continued deflationary pressure in the food segment which had begun in May.

Subsequently, prices of potatoes, other vegetables and pulses saw steeper drops in June. Potato prices fell a massive 47 per cent; pulses and other vegetables saw prices falling by 25 per cent and 21 per cent, respectively.

These drops can be tied to the growing farmer agitations across large parts of Madhya Pradesh and Rajasthan, where growers have complained of incomes crashing due to the fall in price of their crops.

Onion prices fell at a slower clip of nine per cent, after a 12 per cent fall in May.

"inflation is likely to rise modestly over the coming months and print between 1.5 and 2.5 per cent unless commodity prices record an unexpected rally or the rupee displays a sharp depreciation. Average inflation is likely to increase mildly to 2 per cent in FY18, from 1.7 per cent in FY17," said Aditi Nayar, principal economist at rating agency ICRA.

The manufacturers segment, with nearly 65 per cent weightage in the index, saw prices rising by 2.27 per cent in June as compared to 2.55 per cent in May, the slowest in 11 months. Among the two largest sub-indices, manufacturing of food products continued to slow, while that for basic metals saw the rate picking up at 7.92 per cent.

Fuel inflation fell for a fifth straight month, rising 5.28 per cent, down from a 11.69 per cent rise in May.

June WPI inflation drops to 11-month low as food prices ease

As a result, industry bodies have called for a reduction in the repo rate by at least 50 basis points.

"Reducing the policy rate might not improve investment demand. It might boost some demand for the consumer durables sector, which is posting negative growth after demonetisation," said Devendra Pant, chief economist, India Ratings & Research.

The June figures for represent the second instance that wholesale inflation is being calculated according to the new series with an updated base year of 2011-12. The new series adopts a more recent base year and is now aligned with the revised gross domestic product (GDP) and index of industrial production (IIP) series. This allows for a more meaningful comparison, including the GDP deflator measure. This base year revision also allows items such as natural gas and petroleum coke to be included, the production share of which have increased over time.

Apart from this, the series removes the excise duty component from prices, bringing the measure closer to the producer price index and, at the same time, making it less responsive to changes in tax rates.

In the new series, the number of items covered has increased from 676 to 697. In all, 199 items have been added and 146 have been dropped.

First Published: Sat, July 15 2017. 01:22 IST
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