India's July WPI inflation eases to 13.93% as food, fuel prices decline

India’s wholesale inflation in July eased sequentially to 13.93 per cent as vegetables, milk and fuel became cheaper, but remained in double digits for the 16th month.

Wholesale Price Index-based (WPI) inflation was 15.18 per cent last month and at a record high of 16.63 per cent in May. It was 11.57 per cent in July 2021.

WPI inflation rate for May 2022 was revised to a record high of 16.63 per cent year-on-year, from 15.88 per cent estimated earlier. “Inflation in July, 2022 is primarily contributed by rise in prices of mineral oils, food articles, crude petroleum & natural gas, basic metals, electricity, chemicals & chemical products, food products etc. as compared to the corresponding month of the previous year,” said a government statement.

WPI inflation softened on account of a moderation in the inflation for food items, core-WPI, crude petroleum and natural gas, and primary non-food articles, said Aditi Nayar, chief economist at ICRA. “The WPI-Food inflation dipped to single-digits in July 2022, led by primary food articles, with a sharp correction in vegetable prices, led by tomatoes amid incoming fresh supplies and a moderation in manufactured food products owing to a sequential dip in edible oil prices following the Government of India’s (GoI’s) measures and a dip in global prices,” Nayar said.

Primary articles, which constitute 22.6 per cent of the WPI index, grew 15.04 per cent in July 2022 compared to 6.34 per cent in July 2021. WPI inflation in primary articles that mainly comprises food and non-food articles, sequentially eased from 19.22 per cent in June 2022 to 15.04 per cent in July 2022.

Vegetable prices increased 18.25 per cent in July 2022 as compared to a contraction of 8.30 per cent seen in July 2021. However, the inflation was 56.75 per cent in June 2022.

Milk price increased from 2.5 per cent in July 2021 to 5.45 per cent in July 2022. On a monthly basis, milk price dropped from 6.35 recorded in June 2022.

Fuel inflation, which has 13.15 per cent weightage in WPI, increased from 27.01 per cent in July 2021 to 43.75 per cent in July 2022 as prices of high speed diesel (HSD) rose. Fuel prices increased month-on-month from 40.38 per cent witnessed in June 2022.

Manufactured products, which have 64.23 per cent weightage in the WPI inflation, registered a decline from 11.46 per cent in July 2021 to 8.16 per cent in July 2022. Prices of manufactured products, comprising manufactured food products, basic metals and other items, dropped from 9.19 per cent in June 2022.

The recent moderation in the WPI inflation has largely been driven by a correction in global commodity prices following fears of a global slowdown and a dip in some domestic food prices, said Nayar from ICRA. “With the continuing downtrend in commodity inflation and recent appreciation in the INR vs. the US$, the WPI inflation is expected to ease further to 12-13% in August 2022, and average at Rs 13% in Q2 FY23, lower than the 15.7% seen in Q1 FY23. We see a likelihood of the first single-digit WPI inflation print by October 2022, after a gap of 18 months, if the downtrend in commodity prices sustains,” said Nayar. 

Going ahead, the signs of global supply chain normalisation coupled with recession fears in major economies should support the downtrend in commodities prices, said Rajani Sinha, chief economist at CARE Ratings. “Wholesale price inflation is expected to ease further in coming months. However, lower sowing of paddy and tight supply of wheat could limit the fall in primary inflation. Further, a weaker rupee would to some extend mitigate the benefit of decline in commodity prices,” said Sinha.