Contrary to its consumer price index (CPI) counterpart, the wholesale price index- (WPI-) based inflation rate softened to a 23-month low of 2.02 per cent in June.
However, the core inflation rate (non-food, non-oil) in both CPI and WPI eased, prompting experts to expect another rate cut by the Reserve Bank of India’s monetary policy committee (MPC), which is slated to meet in the first week of next month.
Data, released by the government last week, showed that the CPI inflation rate, in fact, rose to an eight-month high of 3.18 per cent in
the month.
The divergence could be due to high weight of food items in CPI — over 45 per cent — than over 15 per cent in WPI.
In fact, food inflation rate in WPI stood almost intact at an elevated level of 6.98 per cent in June. The inflation rate had stood at 6.99 per cent in May.
In CPI, the food inflation rate rose to 2.17 per cent in June from 1.83 per cent in May.
A decline in vegetable inflation rate got offset by a rise in the same for pulses. The pickup in the monsoon and sowing in the last week has eased concerns related to the outlook for food prices in the immediate term.
Aditi Nayar, principal economist at ICRA, said the dip in WPI inflation was led by 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.
In fact, there was deflation (decrease in prices) of fuel and power items at the rate of 2.20 per cent in June compared to the inflation rate of 0.98 per cent in May. Both petrol and diesel saw decrease in prices in June year-on-year.
The core WPI inflation rate eased to a 31 month low 0.8 per cent in June 2019, following two consecutive months of decline, pointing to the weak pricing power of producers.
Notably, while food inflation rate is lower than core inflation at the retail level, the trend is markedly reversed at the wholesale level, Nayar said.
“The WPI data has reinforced our expectation of an imminent rate cut, especially given the dip in core inflation at both the retail and wholesale level,” she said.
Ranen Banerjee, leader, public finance and economics, PwC India, said, “While the RBI targets the CPI, the easing of WPI will provide support to further rate cut action by it. Given that the fiscal policy has adhered to the consolidation path with an expectation of the private sector to pump up the economy, the monetary policy interventions become important. The action will depend on how the oil prices move and how the monsoon pans out as these would have a bearing on the CPI.”