WPI inflation at 4.5-year high, grows 5.77% in June

India’s wholesale inflation grew 5.77 percent in June, a four-and-half year high, driven by some food items and fuel prices, latest price data released by the commerce and industry ministry showed.

A higher inflation in the month of June can also be attributed to an unfavourable base effect. WPI witnessed a growth of 4.43 percent in May and 0.90 percent in June 2017.

Wholesale inflation rate, measured by Wholesale Price Index (WPI), is a marker for price movements in bulk buys for traders and broadly mirrors trends in shop-end prices.

“The lagged transmission of higher crude oil prices, an uptick in cotton prices and electricity tariffs, the hardening of inflation for manufactured products as well as an unfavourable base effect, led to the sharp pickup in the WPI inflation to a 54 month high in June 2018,” Aditi Nayar, Principal Economist at ICRA said.

The data for the month of April has been revised to 3.62 percent from 3.18 percent earlier.

Primary articles, which accounts for more than a fifth of the entire wholesale price index witnessed a uptick to 5.3 percent in June from 3.16 percent in May owing to fuelled by higher prices of Cereals, wheat, vegetables, potatoes, non-food articles, fibers and minerals.

Food articles saw a slight increase, growing 1.8 percent in June from 1.6 percent a month ago. Vegetables prices saw a sharp jump, rising 8.12 percent in June as compared with a growth of 2.51 percent in May.

Continuing with the trend, potato price peaked, rising 99.02 percent in June from 81.93 percent in May.

However, prices of fruits underwent a sharp correction, rising 3.87 percent in June from 15.40 percent a month ago.

Prices of pulses have continued to slump for over a year now, with rate of decline relatively slowing at (-) 20.23 percent in June, as compared with de-growth of (-) 21.13 percent in May.

Fuel and power inflation, which has a weightage of 13.15 percent in WPI, grew at 16.18 percent in June from 11.22 percent in May.

Petrol prices are up 17.45 percent in June from 13.90 in May, while diesel prices grew 21.63 percent in June as compared to 17.34 percent in May.

“An unfavourable base effect as well as the revision in electricity tariffs, and prices of ATF, LPG, naphtha and furnace oil, contributed to the considerable rise in the inflation for fuel and power to 16.2% in June 2018 from 11.2% in May 2018,” Nayar said.

Last week, data released by the government showed that retail inflation grew 5 percent in June, a five-month high, from May’s 4.87 percent on the back of rising fuel prices.  Factory output witnessed a tepid growth of 3.2 percent in May as compared with 4.9 percent jump in April, owing to sluggish manufacturing output.

A higher inflation for the month of June keeps the chances alive of a further rate hike in the month August, according to economists. The RBI governor headed Monetary Policy Committee will be meeting later this month to review interest rate regime.

“The sharper than expected uptick in the WPI inflation in June 2018 reinforces our expectation of a likely repo rate hike at the next MPC meeting in August 2018,” Nayar said.

Source: MONEYCONTROL