WPI falls for straight third month in June, but food inflation rises

Food inflation in WPI rose to 2.04 per cent in June from 1.13 per cent due to disruptions caused by rains

The wholesale price index (WPI) declined — third month in a row — 1.81 per cent in June even as the rate of deflation fell from the 4.5-year high of 3.21 per cent in the previous month.

This was despite some increase in the inflation rate in food items, particularly potatoes, paddy, fruits and processed products. 

Contrary to popular belief, tomato prices fell for the fourth month in a row in June because the rates in the year-ago period were higher.

The government had earlier not released the figures for April due to inability to capture the prices in some segments owing to the lockdown. However, in light of the improved response rates from selected sources, the government on Tuesday came out with data for April, too. 

It showed that the deflation rate stood at 1.57 points during the month. 

Not in sync with its consumer price index (CPI) counterpart, food inflation in WPI rose to 2.04 per cent in June from 1.13 per cent in May due to disruptions caused by the rains. Manufactured food items showed elevated inflation rate at 5.05 per cent compared to 4.46 per cent.

Even though the pressure in retail food prices was much more, the CPI inflation rate in these items declined at 7.87 per cent in June from 9.20 per cent in the previous month.

Aditi Nayar, principal economist at ICRA, said, “The divergence between food inflation at the wholesale and retail levels narrowed considerably while remaining substantial in June 2020, pointing to the continued varied dynamics driving food prices as the country emerges from the lockdown. With vegetable prices rising sharply in recent weeks, the uptick in wholesale food inflation may continue in July.”

Together, both kinds of food  items account for a little over 24 per cent of the WPI. It is mainly  potatoes, fruits and paddy that pushed up the food inflation in primary items (unprocessed food), while animal and vegetable oil and fats drove inflation in manufactured food items. 

However, deflation in tomatoes stood at 54.7 per cent in June, a tad lower than 56.47 per cent in May. The popular perception about rising tomato prices may be borne by the fact that the common man generally assesses the prices on a month-on-month basis, rather than year-on-year. 

On monthly basis,  tomato prices rose about 39 per cent. The remaining items, comprising around 75 per cent  of the index,  continued to show deflation.

For instance, fuel and power witnessed deflation at 13.6 per cent in June, even though less than the 19.83 per cent in the previous month. Most items in the category such as petrol, diesel and liquefied petroleum gas (LPG) showed a fall in prices even though the rate is less compared to May. 

Nayar said the smaller deflation in the headline WPI as well as the excess of CPI inflation over the medium-term target range are unlikely to outweigh growth concerns when the Reserve Bank of India (RBI’s) monetary policy committee deliberates on the course of the monetary policy.  

CPI inflation rate stood at 6.09 per cent in June. RBI requires the rate to be in the range of 2-6 per cent.