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HomeNewsBusinessEconomyWholesale inflation rises to 16-month high of 3.4% in June

Wholesale inflation rises to 16-month high of 3.4% in June

Consumer inflation had risen above 5% in June amid rising food prices

July 15, 2024 / 18:12 IST
wholesale inflation rises in June

wholesale inflation rises in June

Wholesale inflation rose to a 16-month high of 3.4 percent in June as against 2.6 percent in the previous month, as food and manufactured products inflation rose further, according to data released by the government on July 15.

"The jump in the WPI inflation to 3.4% in June 2024 was broad-based, and along expected lines, displaying the third consecutive month of a sizeable sequential step up," said  Aditi Nayar, chief economist, Icra.

Sequentially, wholesale prices were up 0.4 percent from May, as food index rose 2.5 percent and manufactured products rose 0.14 percent over the previous month.

Wholesale food inflation was up 8.7 percent compared with 7.4 percent in the previous month—a 20-month high.

"Fuel and power component of the wholes sale price index accounting for 13.15% weight after remaining in deflation for twelve consecutive month turned into inflation in May 2024 and came in at 1.03% in June 2024," said Ind-Ra economists Sunil K Sinha and Paras Jasrai.

Rising prices of food had contributed to wholesale inflation in the May, as manufactured products had returned to inflation for the first time since February 2023.

Manufactured product, which account for nearly two-thirds weight in the index witnessed 1.43 percent inflation compared with 0.8 percent in May.

"It is really the food inflation that we have seen in the CPI too that is being a major driver, with vegetable prices being up significantly. The other side to it is that we are also seeing manufacturing prices inching up and that will be a strain on corporate margins," said Sujan Hajra, chief economist,  Anand Rathi Shares and Stock Brokers.

Cereals, pulses and vegetables drive inflation 

Six of the 10 major food categories experienced double digit inflation in June, with onions and potatoes leading the charge.

Potato inflation increased to 66.4 percent in June compared with 64.1 percent in the previous month, onion inflation was up 93.4 percent from 58.1 percent in May.

Pulses inflation remained high at 21.6 percent, while paddy rose to 12.1 percent from 11.8 percent earlier.

A galloping food inflation contributed to consumer inflation rising above 5 percent after a gap of four months, according to data released on July 12.

Food inflation had risen to 9.4 percent from 8.6 percent earlier, with vegetable and pulses inflation both in double digits.

Retail inflation of potatoes and onions was 50 percent.

A high inflation and better industrial production is unlikely to deter the central bank to move on policy rate.

Experts noted that the central bank is likely to keep the policy rate on hold at 6.5 percent for the ninth consecutive time at its meeting in August.

Some have also pushed their expectations of a rate cut to December, indicating that even an October will be heavily dependent on progress of monsoons.

Future outlook

Experts contend that July is likely to experience easing of pressures again, as favourable base and easing global commodity prices keep wholesale inflation contained.

Icra expects wholesale inflation to dip to 2 percent in July.

"After rising to seven-month high levels in May 2024, global commodity prices have seen a continuous dip. The Bloomberg commodity price index has eased by 0.9 percent sequentially... in YoY terms, the index contracted by 3.4 percent in July 2024 (up to July 12, 2024)... This augurs well for the WPI inflation print in the month (July)," said Nayar.

For the year, WPI inflation is expected to inch higher.

"The outlook for food inflation has brightened due to anticipations of a normal monsoon, which is expected to bolster agricultural production. However, monitoring the monsoon's temporal and spatial distribution is critical. WPI inflation is expected to trend upwards as favourable base wanes and is estimated to average around 3% in FY25," Rajani Sinha, chief economist, CareEdge added.

Wholesale price index was in deflation in FY24 at -0.7 percent.

first published: Jul 15, 2024 12:04 pm

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