Wholesale inflation at five-month low

Food articles inflation at 8.43% compared to 8.14% m-o-m

Unlike its retail counterpart, Wholesale Price Index (WPI)-based inflation declined to a five-month low of 5.19 per cent in July from 5.43 per cent the previous month, even as the rate of price rise in food items increased. WPI-based inflation was 5.85 per cent in July 2013.

Consumer Price Index (CPI)-based inflation rose to 7.96 per cent in July against 7.46 per cent in June, data released on Tuesday had shown. WPI inflation came down even as food inflation rose to 8.43 per cent in July from 8.14 per cent in June.

A decline in the rise of fuel inflation to 7.4 per cent in July from 9.04 per cent in June and of core inflation (manufactured sans food items) to a six-month low of 3.6 per cent had pulled down WPI inflation. The divergent movement in WPI and CPI inflation reflects the different composition of the two indices. While food items account for 45 per cent of the CPI, their weight in WPI is only 14.34 per cent.

Some economists attributed the divergence to a larger number of intermediaries at the retail level than in wholesale centres. “This points towards the adverse role played by intermediaries in driving retail prices up,” said India Ratings’ principal economist and director, Sunil Kumar Sinha.

However, there is a difference between the way some food items behaved in the WPI and in CPI. For instance, vegetable inflation in CPI rose to 16.88 per cent in July, against 8.73 per cent the previous month.

However, WPI vegetable prices fell in both July and June, by 1.27 per cent and 5.89 per cent, respectively.

Prices of potatoes in the WPI rose 46.41 per cent in July, year-on-year, against 42.52 per cent in June. However, onion prices declined 8.13 per cent, against a June decline of 10.7 per cent. This may seem ironical to the layman, facing high onion prices. This is because inflation is calculated year-on-year and the rate of price rise in onions at this point of time in 2013 was pretty high. In daily practice, however, consumers don’t calculate prices year-on-year but on a daily, weekly or monthly basis.

If one calculates month-on-month, inflation in onions surged 35.1 per cent in July over June.

The WPI rate of rise in fruit, however, remained high at 31.71 per cent in July, against 21.70 per cent in June even on a year-on-year calculation.

Egg, meat and fish prices rose 2.71 per cent in July, against 10.27 per cent in June.

Prediction of low rain in parts of India, including Rajasthan, Gujarat and Maharashtra, will take a toll on oilseeds and pluses. There is already some rise in inflation in these two commodities, though at a low level. While inflation in pulses rose 3.31 per cent in July from 1.78 per cent in June, that in oilseeds increased to 6.36 per cent from 4.84 per cent.