India’s WPI eases in July on food item cooling, but continues in double digits for 16th consecutive month

Wholesale commodity prices in India as measured by the Wholesale Price Index (WPI) declined in July due to a sharp decline in food and manufactured goods prices. Inflation is the rise in price of any good or service and possibly the proportional decline in consumer purchasing power over a period of time.

Data compiled by the Ministry of Commerce and Industry showed India’s WPI was 13.93% in July 2022, down from 15.18% in June and a record high of 15.88 % in May this year. Compared to July 2021, the WPI showed a strong increase. In July 2021, India’s WPI stood at 11.57%.

While wholesale inflation eased slightly in July for the second consecutive month, the WPI remained in double digits for the 16th consecutive month from April 2021. India’s CPI had also reported having declined in July due to weak commodity prices, but continued to remain stubbornly high.

“The rise in commodity prices in July was mainly due to a surge in the prices of mineral oils, certain food products, crude oil and natural gas, base metals, electricity, chemicals and chemicals, food producers, etc. compared to the corresponding month of the previous year,” said a statement issued by the Ministry of Trade and Industry.

Rajani Sinha, Chief Economist, CareEdge, said: “The decline in WPI inflation for the second consecutive month in July is a great relief. The slowdown in WPI inflation in July was mainly due to lower prices for food, metals and chemicals. If the strong sequential rise in oil prices and the rise in electricity tariffs had not taken place, the drop in WPI inflation would have been steeper.

Food prices contributed significantly to lower WPI inflation. In July 2022, food inflation decreased to 10.77% from 14.39% in June. Vegetable inflation fell significantly to 18.25% in July from 56.75% the previous month.

Rajani added: “Going forward, signs of normalization in the global supply chain coupled with fears of recession in major economies should support the downward trend in commodity prices. As a result, wholesale price inflation is expected to slow further in the coming months. However, the drop in paddy plantings and the shortage of wheat could limit the drop in primary inflation. Additionally, a weaker rupee would somewhat mitigate the benefit of lower commodity prices.

The fuel and power basket, however, saw an increase to 43.75% in July from 40.38% in June. The prices of manufactured products and oilseeds stood at 8.16% and (-)4.06% respectively in July.

Despite high correlation with WPI, Reserve Bank of India (RBI) considers Retail Inflation or Consumer Price Index (CPI) to frame economic policy decision during Monetary Policy Committee meeting (MPC). Normally, when retail prices rise, the RBI raises its key interest rates to keep CPI inflation in check. For retail inflation, however, RBI has set a tolerance limit between 2 and 6%. For July 2022, retail inflation was estimated at 6.71%.

Since the Russian-Ukrainian war broke out in February this year, the global supply chain has been extremely disrupted, which has contributed to a sharp escalation in the prices of products and services.

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