Wholesale inflation accelerates to 4.86% in June

Inflation figures during the corresponding month of previous fiscal year stood at 7.58%

The wholesale inflation rose to 4.86% in June after falling to a 43-month low of 4.70% in the previous month, according to the data released by Commerce Ministry on Monday.

The Wholesale Price Index (WPI), a measure of wholesale inflation, rose mainly on the account of rise in prices of primary articles which shot up by 8.14% in June from 6.65% in May. Among the food articles, whose prices rose by 9.74% from 8.25 percent, the sharpest rise was witnessed in vegetables as the prices rose by 16.47% from previous month's 4.85% rise.

However, there was some relief in the manufactured items, which occupy around 65% of the total share in the WPI basket, as the inflation came down to 2.75% in June against 3.11% in May.
 

"We thought that higher food prices would be offset by easing price growth of manufactured goods, though in the end it wasn’t quite enough and the headline figure ticked higher. Higher diesel prices linked to lower fuel subsidies continue to support overall prices", said Glenn Levine, Senior Economist, Moody’s Analytics.

The core inflation (manufactured items minus food articles) fell to a 42nd month low as it stood at 2.1% in June compared to 2.43% in the previous month. Economists believe this could be a sign of worry. "The core inflation coming down suggests that there is absolutely lack of demand in the economy which is a bit disturbing trend", said Devendra Pant, director of India Ratings.

Fuel and power inflation was lower at 7.12% in June year-on-year against 7.32% in May. Petrol prices fell 7.78% compared to 4.43% fall in the previous month. Diesel prices, however, grew 22.7% compared to 21.1.

However, the wholesale inflation managed to remain in the Reserve Bank of India (RBI)'s comfort zone of 4-5% two weeks ahead of the monetary policy review on 30 June. But the higher retail inflation at 9.87% for June, created more divergence between the retail and wholesale inflation which could make it difficult for RBI to cut the policy rate. 

Economists, however, still feel that this would act as hindrance for RBI to cut the rates. "The central bank would maintain status quo as both the inflations are heading upwards which is not a good sign. The wholesale inflation will surely shoot above 5% in the coming months too", said Madan Sabnavis, chief economist, CARE Ratings.