Cheaper non-food items ease India’s June WPI to 23-month low at 2.02%

New Delhi, July 15 (IANS) Lower prices of key transportation fuels along with manufactured items eased India's annual rate of inflation, based on wholesale prices, to a 23-month low of 2.02 per cent in June from 2.45 per cent in May, official data showed on Monday.

Similarly, on a year-on-year (YoY) basis, the Wholesale Price Index (WPI) data furnished by the Ministry of Commerce and Industry showed a decelerating trend as inflation had risen to 5.68 per cent during the corresponding period of 2018.

"The annual rate of inflation, based on monthly WPI, stood at 2.02 per cent (provisional) for the month of June, 2019 (over June, 2018) as compared to 2.45 per cent (provisional) for the previous month and 5.68 per cent during the corresponding month of the previous year," the Ministry said in its review of "Index Numbers of Wholesale Price in India" for June.

"Build-up inflation rate in the financial year so far was 1.33 per cent compared to a build-up rate of 2.41 per cent in the corresponding period of the previous year."

On a YoY basis, the expenses on primary articles, which constitute 22.62 per cent of the WPI's total weightage, increased to 6.72 per cent from 4.74 per cent.

The prices of food items increased at a faster rate. The category has a weightage of 15.26 per cent in the WPI index. It increased to 6.98 per cent from 1.87 per cent.

However, potato prices deflated (-) 24.27 per cent, whereas onion prices inflated by 16.63 per cent. Overall vegetable prices in June rose 24.76 per cent against 8.49 per cent in the year-ago month.

The cost of fuel and power, which commands 13.15 per cent weightage, deflated to (-)2.2 per cent against a rise of 16.52 per cent.

Among the key transportation fuels, the price of high-speed diesel declined by (-) 2.36 per cent from 21.88 per cent on a YoY basis and petrol decreased by (-) 5.73 per cent from 18.23 per cent.

Expenses on manufactured products registered a rise of 0.94 per cent against 4.17 per cent.

On last Friday, the data furnished by the National Statistical Office (NSO), showed that higher food prices accelerated India's June retail inflation to 3.18 per cent from 3.05 per cent in May.

However, on a year-on-year (YoY) basis, the Consumer Price Index (CPI) in June 2019 was lower than the corresponding period of last year when retail inflation stood at 4.92 per cent.

Accordingly, the Consumer Food Price Index (CFPI) inflated to 2.17 per cent during the month under review from an expansion of 1.83 per cent in May 2019.

Commenting on June's WPI data, ICRA's Principal Economist Aditi Nayar said: "The dip in the WPI inflation to a 23-month low in June 2019 was led by a favourable base effect, lower crude oil prices, as well as the decline in core inflation to below 1 per cent, highlighting the lack of pricing power, and offsetting the concern generated by firm food inflation."

India Ratings & Research Principal Economist Sunil Kumar Sinha said: "Wholesale inflation came down to 2.02 per cent in June 2019 as compared to 2.45 per cent a month ago. This is the lowest print in 23 months. At a broad level softening of wholesale inflation was mainly driven by manufactured products followed by fuel and power. Even core inflation fell to 0.8 per cent which is a 31 month low."

"On the whole though risk relating to food prices are rising, non-food prices are offsetting it. Therefore, in all likelihood trajectory of wholesale inflation is going to remain soft even in the remaining months of FY20. India Ratings and Research therefore believes under current growth, inflation and fiscal dynamics odds are in favour of a fourth consecutive policy rate cut by RBI in August 2019."

Madhavi Arora, Economist, Edelweiss Securities said: "With inflation looking to be tamed for now, and with budget being pro-cyclical, the monetary policy focus will likely be on further growth support and on transmission of past cuts."

"MPC's reaction function is going to be influenced by monsoon's progress, Brent and INR movement, and global policy stance and global risk re-assessment. We see marginal upside risk to RBI's inflation trajectory in 4QFY20 and will closely watch out for inflation evolution amid various domestic and global idiosyncrasies and fiscal fragilities as the year passes."