July WPI at -0.58%, in negative zone for fourth month on the trot

The Wholesale Price Index continued to be in the deflationary territory for the fourth straight month in July. Data released by the Commerce Ministry on Friday showed that WPI inflation came in -0.58 per cent year-on-year, compared with -1.81 per cent in June and a 4.5-year low of -3.37 per cent in May.

The steep fall in deflation from June to July slightly reduced the gap between WPI and Consumer Price Index-based inflation. On Thursday, official data had shown that retail inflation came in above the monetary policy committee’s target band of 4 per cent (with a margin of +/-2) for the fourth consecutive month in July. CPI inflation rose to 6.93 per cent year-on-year, up from 6.23 per cent in June, mainly because of a rise in food and petroleum prices.

Wholesale food prices continued to rise. The WPI Food Index-based inflation rose to 4.32 per cent in July compared with 3.05 per cent in June and 2.73 per cent in May. Wholesale prices of fuel and power rose sharply as well, to -9.84 per cent in July from -13.6 per cent in June and -23.08 per cent in May.

Among wholesale food price sub groups, vegetable saw the biggest spike in prices at 8.20 per cent in July compared with -9.21 per cent in June, while fruits fell to -3.03 per cent from 2.31 per cent. Wholesale onion prices deflated to -25.56 per cent from -15.27 per cent.

“The wholesale primary food inflation recorded a sharper climb in July 2020 relative to the previous month, as compared to the modest uptick in the retail food inflation, highlighting the varied trends at the mandi and retail level. Nevertheless, the CPI food inflation remained much higher than the wholesale food inflation in July 2020,” said Aditi Nayar, Principal Economist with ICRA Ltd.

“With a sharp base effect. we expect the core items to record a turnaround to a mild inflation in August 2020, even as the headline WPI may remain in disinflation, the pace of which is likely to narrow further,” Nayar said.

“Wholesale price inflation in the next month could pick-up further and could record positive inflation in August largely driven by pick-up in wholesale food prices owing to supply disruptions led by imposition of lockdown measures in certain parts of the country. However, supply of fresh kharif stocks could partially ease wholesale prices to some extent. Prices in the fuel segment could continue to remain in the negative trajectory owing to benign crude oil prices,” said Madan Sabnavis, Chief Economist with Care Ratings.