Wholesale inflation contracts for 4th month in a row
India’s wholesale prices contracted for the fourth straight month in July, official data showed on Friday, though the rate of deflation eased from the preceding month. The price of crude oil fell drastically during July, while most manufacturers continued to lose pricing power as consumer demand waned amid the unfolding coronavirus pandemic.
Data released by the industry department showed that wholesale price index (WPI) inflation contracted 0.58% in July against a 1.81% contraction in June. During the month, crude oil prices softened 25.6% from a year ago, while fuel prices eased by 9.8% from their levels a year earlier.
Eight out of the 17 categories of manufactured products listed in WPI, including textiles, wearing apparel, leather products, wood, paper, chemicals, rubber and basic metals, saw a contraction in prices as both demand and supply remained constrained due to coronavirus-related issues.
Wholesale food inflation, however, picked up marginally in July to 4.1% from 2% in the preceding month.
Data on consumer price index (CPI) index inflation released on Thursday showed food inflation reared its head again in July (9.62%) after decelerating in June (8.72%) mostly due to localized lockdowns across the country and heavy rainfall in parts of the country, while headline retail inflation quickened to 6.93% during the month, remaining above the central bank’s tolerance level.
The divergence between food inflation at the wholesale and retail levels remained significant in July even after narrowing considerably, pointing to the continued varied dynamics driving food prices as the country emerged from the national lockdown.
Traditionally, retail and wholesale price inflation have followed different trajectories because CPI and WPI are two different sets of indicators with varied compositions. Manufactured items have the highest weight of 64.23% in WPI, while fuel group and primary articles have 13.15% and 22.62% weight. On the other hand, food and beverages have the highest weight of 54.18% in CPI, while services sectors such as health, education and amusement have a combined weight of 27.26%. However, retail food inflation often mimics wholesale food inflation with a lag as price rises are first reflected in the wholesale market before the retail market.
While retail inflation remains elevated above the upper limit of the tolerance level of the Reserve Bank of India, most analysts believe the central bank may continue to keep rates on hold. The monetary policy committee had cut the policy rate cumulatively by 135 basis points between February 2019 and the onset of the pandemic.