India's wholesale inflation eases to 9.78% in July from 9.87% in June

India's wholesale inflation eased to 9.78% year-on-year in July from 9.87% in June, according to data released by the commerce ministry on Friday. The June reading was the highest so far under the government's new WPI series, which uses 2022-23 as the base year.

The July reading comes a couple of days after the government data showed India's retail inflation rose to 4.45% in July from 4.38% in June, with food prices continuing to put pressure on consumer inflation.

A Reuters report expected WPI likely to remain elevated at 9.95% in July, roughly unchanged from June levels.

Fuel, food prices drive wholesale inflation

Inflation in the fuel and power basket stood at 20.05% in July, compared with 27.41% in June. The category had been a major driver of wholesale price pressures in recent months, although its inflation rate eased from 30.33% in May to 27.41% in June.

Inflation in primary articles stood at 8.52% in July against 7% in June, while inflation in manufactured products was 8.29%, compared with 7.48% in the previous month.

The WPI food index, which includes food articles under primary articles and manufactured food products, recorded inflation of 6.65% in July against 6.14% in June. Food inflation had accelerated sharply in June from 4.49% in May.

What is driving the pressure

Within the primary articles basket, inflation in food articles stood at 5.44% in July, while prices of minerals and non-food articles recorded inflation of 13.28% and 17.66%, respectively.

Among manufactured products, inflation in food products, basic metals and chemicals and chemical products stood at 8.89%, 12.56% and 13.12%, respectively.

The government said mineral oils, food articles, manufacture of basic metals, non-food articles, manufacture of food products, and manufacture of chemicals and chemical products were the major drivers of WPI inflation in July.

New WPI series

The July data is the third monthly reading under the revised WPI series with 2022-23 as the base year. The government introduced the new series in June, replacing the earlier 2011-12 base year.

The revised series expanded the WPI basket to 957 items from 697 earlier. It also introduced new energy sources such as solar and wind power into the electricity group and included nuclear electricity.

The weights of the three major groups have also changed under the new series. Fuel and power accounts for 14.1% of the index, primary articles for 22.8% and manufactured products for 63.1%.

The government has also revised the final WPI index for May to 110.1 from the provisional estimate of 109.9. As a result, May WPI inflation has been revised to 9.88% from the earlier estimate of 9.68%.

Wholesale inflation remains higher than retail inflation

The gap between wholesale and retail inflation remained wide in July, with WPI inflation at 9.78% compared with CPI inflation of 4.45%.

Retail inflation rose for the second consecutive month in July and remained above the Reserve Bank of India's 4% medium-term target. Food prices were a key factor behind the increase.

The wholesale inflation data will also be watched for signs of price pressures faced by producers and manufacturers, particularly as higher input costs can eventually feed into retail prices.

The government has said WPI will continue to be released for five years alongside the new Producer Price Index (PPI), after which it will be discontinued to allow users to transition to PPI.