Wholesale price inflation hits 4-year high in June at 5.77%

NEW DELHI: High food and fuel prices drove India’s wholesale inflation to a four-and-a-half-year high in June, cementing the case for the Reserve Bank of India to increase interest rates.

Inflation measured by the Wholesale Price Index (WPI) was 5.77% in June, accelerating sharply from 4.43% in May and 0.9% in June 2017, according to data released by the commerce and industry ministry on Monday.


“Input prices have been surging and that is reflected in WPI. It is important to see how the pressures being built by input prices pass through to CPI (Consumer Price Index) inflation eventually,” said Upasna Bhardwaj, an economist at Kotak Mahindra Bank. Bhardwaj expects one interest rate increase in August.

Last week, data released by the government showed retail inflation at a five-month high of 5% in June on the back of rising fuel prices, reinforcing expectations of a likely repo rate increase at the next meeting of the RBI’s Monetary Policy Committee in August.

Wholesale prices of vegetables rose 8.12% in June compared with a 2.51% increase in May, while potato prices climbed 99.02% in June from 81.93% in the trailing month.

“The lagged transmission of higher crude oil prices, an uptick in cotton prices and electricity tariffs, the hardening of inflation for manufactured products as well as an unfavourable base effect, led to the sharp pickup in the WPI inflation to a 54-month high in June,” said Aditi Nayar, principal economist at ICRA.

Fuel and power prices rose 16.18% in June compared with an 11.22% increase in May. With the fall in sugar prices getting arrested, manufactured food inflation was 1.1% in June from the marginal 0.24% in May. The government revised wholesale inflation for April to 3.62% from 3.18% earlier.

Nayar expects wholesale inflation to cool in July.

“While the outlook for WPI inflation would be influenced by commodity prices, INR movement, effectiveness of minimum support prices and the dispersion of the monsoons, an easing of the base effect should cool WPI inflation for July to some extent,” she said.