Food inflation pushes up WPI

Wholesale Price Index (WPI) inched up in June to 1.6 per cent, the highest since November 2014. This was led by higher food inflation, especially in pulses, vegetables, tea and spices. Fuel inflation continued to fall, while core inflation as measured by the CRISIL Core Inflation Indicator (CCII) inched up to two per cent.

Food inflation (primary plus manufactured food) rose to 8.23 per cent, from 7.77 per cent in May due to a rise in both primary and manufactured food inflation.

Primary food inflation inched up to 8.2 per cent, from 7.9 per cent previously, led by higher inflation in pulses, vegetables, tea, and condiments & spices. Inflation in processed food (food products), which has been rising since September 2015, rose to 8.4 per cent, from 7.5 per cent in May on the back of a rise in sugar inflation.

For the past few months, an interesting phenomenon had emerged in the two core inflation measures. Not only were the two measures showing a divergent trend, but the CCII measure also turned positive since December, while the non-food manufacturing inflation measure remained negative. In June, the non-food manufacturing inflation measure stood at minus 0.3 per cent, while CCII inflation, after entering the positive zone in December, was at two per cent.

The pick-up in CCII has been mainly led by a rise in inflation in processed food products (18 per cent weight in this index), beverages, tobacco & tobacco products. The CCII offers a better perspective on core inflation as it negates the effect of volatile categories.

It excludes base metals, as their prices are mostly determined by global demand-supply dynamics and volatility in exchange rates, rather than just domestic conditions. This exclusion causes a variance between CCII and non-food manufacturing inflation. Basic metals prices continued to fall in June, with inflation at minus three per cent, compared to minus 3.3 per cent in May. As a result, non-food manufacturing inflation remained in the negative zone in the month.