Wholesale inflation in July falls to multi-year low of 1.08% on cheaper fuel, food items

Wholesale price-based inflation July fell to a multi-year low of 1.08 percent mainly on account of cheaper fuel and food items, government data showed on Wednesday.

Inflation based on the Wholesale Price Index (WPI) was at 2.02 percent in June this year and 5.27 percent in July 2018.

The government data said inflation in food articles was 6.15 percent in July as against 6.98 percent in the previous month.

Similarly, wholesale inflation in the fuel and power segment contracted further to (-) 3.64 percent as against (-) 2.2 percent in June.

The consumer price index (CPI)-based retail inflation, which the Reserve Bank of India (RBI) takes into account while deciding its monetary policy, eased marginally to 3.15 percent for July, indicating room for further rate cut in monetary policy in October.

Although the RBI does not take into account the WPI while deciding its monetary policy, steep decline in wholesale inflation rate to 1.08 percent will strengthen the case for a further rate cut in the next policy decision in October.

 Wholesale inflation in July falls to multi-year low of 1.08% on cheaper fuel, food items

Representational image. Reuters.

The inflation in food articles — with over 15 percent weightage in WPI basket —stood at 6.15 percent in July, as against 6.98 percent in the previous month, data released by the Commerce Ministry showed.

Amongst food articles, potato prices continued to slide during July at (-)23.63 percent as against (-) 24.27 percent a month earlier and vegetable prices eased with an inflation print of 10.67 percent (from 24.76 percent).

However, prices of fruits moved up by 15.38 percent during the month as against a meagre inflation print of 1.87 percent in June this year.

For non-food articles, the wholesale rate of price rise stood at 4.29 percent, slightly lower than 5.06 percent a month earlier.

Inflation in manufactured products — with weightage of 64.23 percent —eased marginally to 0.34 percent from 0.94 percent, as per the government data.

WPI inflation is expected to remain muted in the near term, reflecting the continued softness in commodity prices, although a weaker currency may arrest the correction in price of imports, said Aditi Nayar, principal economist of ICRA.

The fall in the core-WPI inflation contrasted with the uptick in core CPI inflation in July 2019, led by the different composition of these two indices.

Around half of the core-CPI is made up of services, the demand for which is likely to be sticky in a downturn and prices relatively inelastic to changes in commodity prices, she added.

"Moreover, available trends suggest that the fall in wholesale food inflation in July 2019 may prove to be temporary. Additionally, the rise in gold prices would push up inflation related to other manufacturing," Nayar said.

Rahul Gupta, Currency Research Head, Emkay Global Financial Services said the drop in WPI was unexpected, it is largely due to a fall in food inflation.

"The drop in retail and wholesale inflation clearly states that the 110 bps rate cut transmission is still not observed, keeping a room open for one more rate cut in the future. If not a rate cut then RBI may force banks to reduce their MCLR in order to revive consumer demand," he said

On 7 August, the Reserve Bank of India (RBI) had slashed the repo rate for the fourth time in a row by an unprecedented 35 bps to cushion the rising headwinds to growth amidst softer inflation, and also lowered its growth forecast for the year by 10 bps to 6.9 percent.

"The monetary policy committee (MPC) judged that with inflation projected to remain within the target, addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture," RBI Governor Shaktikanta Das told reporters after announcing the third bi-month monetary policy meeting of the year.

With this, the RBI reduced the repo rate by 110 bps since February this year. In the previous three monetary policies, the central bank had cut the repo rates by 25 bps each.

With PTI inputs

Updated Date: Aug 14, 2019 16:55:04 IST