Wholesale inflation eases to 12.07% in June despite spike in fuel price

Wholesale inflation came in at (-)1.81% in June 2020, due to the implementation of a stringent nationwide lockdown

India's wholesale inflation remained elevated, even as it moderated to 12.07 per cent in June from a record high of 12.94 per cent in May, amid a sustained rise in fuel and commodity prices, data released by the government on Wednesday showed.

Wholesale prices, whose increase or decline is measured in terms of wholesale price index (WPI), witnessed deflation at of 1.81 per cent in June 2020.

“The high rate of inflation in June 2021 is primarily due to low base effect and rise in prices of mineral oils viz. petrol, diesel (HSD), naphtha, ATF, furnace oil etc, and manufactured products like basic metal, food products, chemical products etc as compared to the corresponding month of the previous year,” an official statement said.

Wholesale inflation has been on a rise since January, with June being the third consecutive month in which the inflation has been more than 10 per cent.  

“Firstly, wholesale inflation with 2011-12 base had not seen double digit inflation prior to April 2021 and secondly such elevated levels of inflation for three consecutive months was also not witnessed earlier. The highest level to which wholesale inflation had reached was during January 2013 to March 2013 and remained in the range of 8.0% to 8.6%,” Sunil Kumar Sinha, Principal Economist, India Ratings & Research.

Food prices fell to 3.1 per cent in June from 4.31 percent in May and 2.1 per cent in June 2020. Fuel and power inflation that has been on an elevated level since March, stood at 32.83 percent in June as compared to 37.61 per cent  a month ago as international crude oil prices and petrol, diesel prices remained elevated.

Primary articles, which accounts for more than a fifth of the entire wholesale price index, grew 7.74 per cent in June compared to 9.6 per cent in May and (-) 0.1 per cent a year ago. Prices of items such as pulses, egg, meat and fish remained elevated, even as it declined sequentially.

“Inflation in the fuel and power segment has shown signs of easing during the month. However, rigidity in international & domestic oil prices, improving pricing power of manufacturers and a low base of last year are likely to keep inflation at elevated levels in the near term in the double digit range,” Madan Sabnavis, chief economist at CARE Ratings said.

Price rise in manufacturing products that accounts for close to two-third of the index, remained almost flat at 10.88 per cent as compared to 10.83 per cent a month earlier.

“As manufacturers are passing on the rising input costs to their output prices, wholesale core inflation too has risen to 10.4% in June 2021 (May 2021: 10.0%, June 2020: -0.9%), highest in 2011-12 series. Seven manufacturing groups - textiles, paper and paper products, chemical and chemical products, rubber and plastic products, basic metals, fabricated metal products and furniture witnessed wholesale inflation in excess of 10% in June 2021,” Sinha said.

Sinha further said that a large part of the rise in inflation can be attributed to imported inflation. As global commodity prices are a pass through in the Indian economy, price increase in mineral oils, crude petroleum, minerals and basic metals are finding a reflection in the wholesale inflation. “Indeed, a higher inflation is a tax on consumers, especially the people who are at the bottom of the pyramid,” he said.

Economists expect wholesale inflation to remain elevated over the next few months.