Wholesale inflation again reduces marginally in July, climbs down to 11.1%

The slow climbdown in wholesale inflation was led by the constant rise in cost of fuel, including petrol, LPG and high speed diesel, which percolated down into all sectors of the economy.

Wholesale inflation in the country continued to slowly reduce, albeit marginally, reaching 11.16 percent in July. This was slightly lower than June's 12.07 percent.

Measured by the Wholesale Price Index (WPI), wholesale inflation in India still continued to record major highs for the fourth consecutive month, even as the pace of inflation slowed down.

“The WPI inflation cooled for the second month in a row to 11.2 percent in July 2021, modestly trailing our expectation (11.5 percent), benefitting from a favourable base effect, a welcome softening of food price pressures and the uncertainty related to the Delta plus variant arresting the rise in commodity prices," Aditi Nayar, Chief Economist, ICRA said.
The slow climbdown in wholesale inflation began after reaching massive levels of 13.1 percent in May, led by the constant rise in cost of fuel, including petrol, LPG and high speed diesel, which percolated down into all sectors of the economy. It had continued to spike every month as it reached a record high in April (10.94 percent). In March, it was 7.89 percent, and 4.83 percent in February.

Oil prices cool

July saw fuel inflation rising by 26 percent, as compared to 32 percent in June and 37 percent in May. Fuel inflation had begun biting back then, going up from 21 percent in April. According to the WPI, after reducing for 11 straight months, overall fuel prices had risen by just 2 percent in February. But since that it has escalated quickly.

This is due to the average international crude oil price, in Indian basket terms, declining and the government not increasing petrol prices further as a result.

According to ICRA, the average price of the Indian basket has declined by 3.4 percent to $71.0/barrel during August 1-11, 2021 from $73.5/barrel in July 2021, after OPEC+ agreed to gradually increase the supply from August 2021 onwards. Moreover, the uncertainty regarding the spread of the Delta variant across the globe has contributed to lower crude oil prices.

Overall inflation was further pushed up by a larger 11 percent rise in manufacturing prices, up from 10.8 percent in June.
Experts expect WPI inflation to soften going forward. "We expect the core-WPI inflation to have peaked at 10.8% in July 2021. The rapid rise in the core-WPI inflation from August 2020 onwards as well as the impact of concerns related to the Delta plus variant on commodity prices are likely to gradually soften the core prints going ahead," Nayar said.