Spike in food prices pushes WPI inflation to 16-month high in June

The inflation in food prices stood at 10.87 per cent during the month, the data released by the Ministry of Commerce and Industry on Monday showed

India’s Wholesale Price Index (WPI)-based inflation rose for the fourth consecutive month in June to a 16-month high of 3.36 per cent from 2.61 per cent in May, primarily on the back of an adverse base effect and a sharp spike in food prices.

Inflation in food prices stood at 10.87 per cent during the month, showed data released by the Ministry of Commerce and Industry on Monday. In June 2023, wholesale inflation had stood at -4.18 per cent.

Within food articles, pressure on the factory gate prices majorly built up on account of acceleration in the prices of onion (93.35 per cent), potato (66.37 per cent), vegetables (38.76 per cent), cereals (9.27 per cent), fruits (10.14 per cent) and wheat (6.25 per cent). Meanwhile, even as the prices of pulses (21.64 per cent) decelerated during the month, they remained quite elevated.

On the other hand, prices of protein-rich items like eggs & meat (-3.06 per cent) and milk (3.37 per cent) provided some relief during the month.

Madan Sabnavis, chief economist, Bank of Baroda, said the trend will be for the headline number to increase due to low base effect as well as elevated food prices.

“The heatwave impact on vegetable prices will continue until the next crop comes in August. Cereals and pulses inflation will be elevated till the kharif harvest begins. The secondary round of price increase in food products on the manufacturing side looks possible as input costs have gone up,” he added.

Manufactured products, which have a weightage of 64.2 per cent in the index, also saw a sharp rise in inflation to 1.43 per cent in June from 0.78 per cent in May. This was led by an acceleration in the prices of manufactured food products (4.28 per cent), manufactured beverages (2.07 per cent), wood items (3.17 per cent), rubber (1.34 per cent), and basic metals (1.06 per cent). 

Factory gate prices for fuel & power (1.03 per cent) decelerated in June as that of high-speed diesel (-1.78 per cent) remained in contraction and prices of cooking gas (1.49 per cent) decelerated. Petrol prices also contracted (-1.35 per cent) during the month.

Rajani Sinha, chief economist, CARE Ratings, said Brent prices have risen over the past one month due to supply-side concerns largely stemming from production cuts by the Organization of the Petroleum Exporting Countries (OPEC).

“OPEC countries have recently agreed to extend production cuts announced last year into 2025. Having said that, global commodity prices, which had been rising through the first half of 2024, have eased over the past month led by a fall in industrial metal prices,” she added.

This uptick in factory gate inflation, coming days after the spike in food prices, has pushed retail inflation rate to 5.08 per cent in June. Although the Reserve Bank of India (RBI) tracks retail inflation for its monetary policy, the anticipated elevation in WPI may end up keeping retail inflation elevated.