WPI inflation falls further in June

India's wholesale inflation continued in the negative terrain for the third consecutive month. The wholesale price index (WPI) for June fell to -4.12% as against -3.48 recorded in May.

This is the 13th consecutive month when the wholesale price index (WPI) has declined. In April 2023, wholesale inflation plunged below zero for the first time since July 2020.

The decline in the rate of WPI inflation in June is primarily due to a fall in prices of mineral oils, food products, basic metals, crude petroleum & natural gas, and textiles, the Ministry of Commerce and Industry says in a statement.

Wholesale inflation in the fuel and power basket further declined from -9.17% in May to -12.63% in June. While prices of coal (2.46%) increased in June as compared to May, prices of mineral oils (-2.30%) and electricity (-2.96%) declined in June 2023 as compared to May 2023.

Wholesale inflation in manufactured products stayed in the negative terrain at -2.71% in June compared with -2.97% in May.

"The decrease in price is mainly contributed by basic metals; chemical and chemical products; textiles; rubber & plastic products and paper & paper products, etc. Some of the groups that have witnessed an increase in prices are tobacco products; computer, electronic and optical products; leather and related products; motor vehicles; trailers and semi-trailers; wood and of products of wood and cork; printing & reproduction of recorded media and other non-metallic mineral products etc. in June, 2023 as compared to May, 2023," the commerce ministry says.

This comes a day after India’s retail inflation rose to 4.81% in June 2023 from 4.31% in May, according to the official data released by the Ministry of Statistics & Programme Implementation shows. The Consumer Price Index (CPI) inflation in rural areas rose to 4.72% in June 2023 from 4.23% in May, while in urban areas it increased to 4.96% in June, up from 4.33% in May 2023.

According to SBI Research, price variation in staples like tomatoes, onions and potatoes is the chief cause behind the volatility in the price of vegetables and food inflation. If tomato prices continue to increase, retail inflation will touch 6%, which is the upper tolerance limit of the Reserve Bank of India, says SBI Research.

"Analysing volatility in vegetable prices, tomato, onion and potato (TOP) form the staples in Indian kitchen and their price variation is the chief cause of volatility in vegetable/food inflation. We believe if tomato prices increase without any substantial change in potato and onion then average inflation in Q2 FY24 will come near 5.8% year on year but if the TOP inflation increases, then CPI might come around 6.0% yoy in Q2 FY24," the report says.