WPI inflation in July slips to 25-month low of 1.08 per cent on cheaper food items, fuel

NEW DELHI: India’s wholesale inflation hit a 25-month low in July, highlighting weak demand in the economy and triggering calls for further rate cuts by the Reserve Bank of India. Inflation as measured by the wholesale price index (WPI) stood at 1.08% in July, data showed on Wednesday, slowing sharply from 2.02% in June.

Inflation in manufactured products, with a weight of 64.23%, eased to 0.34% from 0.94%, suggesting lack of pricing power for manufacturers in the face of weak consumer demand. Wholesale inflation in July was the lowest since June 2017, when it had slowed to 0.9%. “This was mainly due to a sharp decline in inflation for manufactured items at 0.3%, which is not good news for industry as it indicates loss of pricing power,” CARE Ratings said in a note.

Data show possibility of further moderation in retail inflation going ahead. Retail inflation eased to 3.15% in July from 3.18% the previous month, data released on Tuesday showed.


DK Joshi, the chief economist at ratings firm Crisil, said inflation numbers suggested that demand in the economy was weak and that the RBI had room to cut interest rates further.

The central bank cut rates last week by 35 basis points, or 0.35 percentage point, for a cumulative 110-basis-point reduction so far in 2019, even as it lowered its growth forecast to 6.9% for fiscal 2020 from 7% earlier. The RBI will next review monetary policy in October.

Car sales fell 31% in July, while industrial production rose a tepid 2% in June. Global uncertainty has, meanwhile, weighed on exports. GDP growth fell to a five-year low of 5.8% in the January-March quarter.

“Both the Consumer Price Index and the WPI number for July have been lower than expectations and are broadly signalling towards a slowdown in the economy,” said Sakshi Gupta, the India economist at HDFC Bank.

Inflation in food articles — with an over 15% weight in WPI basket — slowed to 6.15% in July from 6.98% the previous month.

In fuel and power, prices captured in the WPI fell 3.64% from a year earlier in July, compared with a 2.2% on-year decline in June.

WPI inflation is expected to remain muted in the near term, reflecting continued softness in commodity prices, although a weaker currency may arrest the correction in price of imports, said Aditi Nayar, the principal economist at ratings firm Icra. Core inflation as measured by the WPI, which excludes fuel and food and is considered an indicator of demand, slowed to a 33-month low of 0.2%.