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Wholesale inflation up for 5th straight month in June at 4-yr high of 5.77%

Inflation in vegetables jumped to 8.12 per cent in June, from 2.51 per cent in the previous month

Subhayan Chakraborty  |  New Delhi 

WPI inflation soars to 14-mth high; rises to 4.43% in May from 3.18% in Apr

Ahead of the Reserve Bank of India’s (RBI) monetary review next month, wholesale price rose to a four and a half year high of 5.72 per cent in June, up from 4.43 per cent in May.

A jump in fuel prices, along with a continuing uptick in food inflation, led to a rise for a fifth month in a row. This raises pressure on the RBI to raise its policy rate (repo) of interest, experts said. The RBI had raised it by 25 basis points (bps) last month.

Higher prices of fuel and food have been a factor for five months. In addition, figures released on Monday by the commerce and industry ministry showed rising prices across all major categories picked up pace in June, to contribute to a higher reading of the (WPI). “We expect the RBI to remain cautious and possibly deliver another 25 bps rate hike in August, given the risks of (1) further broad-based increase in core inflation, (2) impact of minimum support price (MSP, for major crops) hikes, and (3) lower crop production, given the progress of the monsoon and sowing patterns,” went a report on by Kotak Securities Research.

The sharper than expected June rise in reinforce the expectation of a repo rate hike at the August meeting of the monetary policy committee, agreed Aditi Nayar, principal economist at rating agency Icra. Retail inflation, as measured by the Consumer Price Index (CPI), was also at a five-month high in June of 5 per cent, up from 4.87 per cent in May.

Within WPI, the price of both petrol and high-speed diesel rose in double-digit figures for a third straight month. Petrol rose in June by 17.45 per cent, up from 13.9 per cent in May; inflation in high-speed diesel accelerated to 21.63 per cent, from 17.34 per cent.

"The lagged impact of the spike in the (global) price of crude oil and an unfavourable base effect caused the year-on-year inflation for crude petroleum to double to 62.2 per cent, from 30.5 per cent in May," said Nayar.

After a three-month fall, liquefied petroleum gas (cooking fuel) prices rose by nearly 20 per cent. As a result, inflation in the energy category rose to 16.18 per cent, from 11.22 per cent the previous month.

Graph

Food inflation on upward swing

Price rise in the food segment also strengthened in June, at 1.8 per cent, up from 1.6 per cent in May. Prices of vegetables rose 8.12 per cent, from a 2.31 per cent rise in May, when prices had turned inflationary.

Wheat saw inflation at 5.14 per cent, up from the 3.05 per cent in May after sustained deflation for six months. Potato prices almost doubled in June, up from the 81.93 per cent rise seen in May. This continued a half-year trend whereby its wholesale prices have surged.

However, prices of fruit and paddy rose at a slower pace in June, compared to May. Also, prices of pulses continued to remain deflationary, though the rate slightly fell in June to 20.23 per cent, from May’s 21.13 per cent.

"Even core inflation or inflation in items other than food and fuel has shown a sustained increase over the past three months. Higher core inflation is often interpreted as indication of reduction in an economy’s output gap," said Sunil Kumar Sinha, principal economist at India Ratings & Research.

There are some complexities, too. "Industrial growth slowed to a seven-month low in May and several manufacturing sectors are still saddled with excess capacity; on the other hand, core sector inflation at 4.8 per cent is the highest print in the new WPI series (base FY12)," Sinha added.

Inflation in manufactured products stood at 4.17 per cent, up from May’s 3.73 per cent. Sugar prices fell for a sixth straight month, with deflation at 13.37 per cent, albeit lower than June’s 19.46 per cent.

First Published: Tue, July 17 2018. 00:07 IST
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