Wholesale inflation hits record 9.9% in June on fuel, food prices

New Delhi: India's wholesale inflation rose to a record 9.9% year-on-year in June, driven by an increase in fuel and food prices amid continued impact of the West Asia conflict.

Fuel and power remained the largest contributor, with prices in the category rising 27.4% year-on-year, although the pace eased from 30.3% in May, official data released on Tuesday showed. Wholesale inflation in May stood at 9.7%.

This is the second reading under the revised Wholesale Price Index (WPI) series with 2022-23 as the base year. The rise in wholesale inflation comes even as retail inflation climbed to 4.4% in June from 3.9% in May, indicating broadening price pressures across the economy. "The WPI inflation unexpectedly hardened to a series high in June, amid a higher-than-expected fuel and power print," said Rahul Agrawal, principal economist at rating agency ICRA.

Within the fuel and power segment, mineral oil inflation stood at 46.5% in June, compared with 49.8% in May, while inflation in crude petroleum and natural gas moderated to 34.8% from 61.5%.

The West Asia crisis has pushed up prices across fuel-related categories, including mineral oils, crude petroleum and natural gas, in recent months.

While global commodity prices, including crude oil, softened on average after the US and Iran signed a deal to halt military operations in mid-June, renewed tensions with the countries resuming strikes over the Strait of Hormuz have caused a rebound in recent trading sessions, posing upside risks to inflation. "Wholesale prices across most food items have witnessed a hardening in their inflation prints in early-July relative to June, suggesting that the WPI-food inflation is likely to inch up somewhat in the ongoing month," Agrawal said.

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ICRA expects wholesale inflation at 9% in July, while India Ratings and Research (Ind-Ra) projects around 10%. Bank of Baroda projects it to remain in the range of 9-10% over the next couple of months. "A lot will also be dependent on the monsoon and the kharif outcome," said Madan Sabnavis, chief economist at Bank of Baroda.

Food inflation, which accounts for around a quarter of the basket, rose to an 18-month high of 6.1% in June from 4.5% in May. "A part of the rise in prices can be attributed to the heavy rains towards the end of the month affecting supplies," Sabnavis said.

Core WPI eased to 7.5% in June from 7.7% in the previous month, amid some sequential softening in commodity prices.

Inflation in manufactured products rose to 7.5% year-on-year in June, while inflation in primary articles accelerated to 7% from 5% in May. Among manufacturing sub-groups, chemicals registered inflation of 12.8%, tobacco products (14.1%), and basic metals (12.3%). "Primary articles inflation was a broad-based increase, though mineral prices escalated the maximum," said Megha Arora, director at Ind-Ra.

Producer Price Index (PPI) output inflation edged up to 9.6% in June from 9.4% a month earlier.

The government also released a trial Input PPI for manufacturing, which rose to 107.1 in June from 104.9 in May, reflecting a 2.1% increase.