PremiumThe June wholesale price index (WPI) inflation data seems to have provided markets with a breather. But for India’s manufacturers to breathe easy on input costs will take some time yet.
WPI inflation cooled to 12.07% in June from 12.94% in May, primarily led by a fall in prices of food items. Food inflation slipped to 6.66% from 8.11%. To be sure, the base effect too had a hand in bringing down headline inflation.
Beyond these two, however, there is no respite from rising prices. Inflation for manufactured products, in fact, rose to 10.88% from 10.83% and fuel inflation also remained firm. Manufactured products inflation has been rising consecutively for 14 months now. Within this category, the increase in prices is almost across sub-segments. From basic metals to computers, textiles, pharmaceutical products, and machinery, prices have increased. In essence, India’s manufacturers have seen their margins get squeezed irrespective of the sector they belong to.
The reasons behind this increase have not changed, though. The surge in global commodity prices has continued and domestic fuel prices have remained elevated. Ergo, manufacturers continue to feel the pinch of rising input costs and analysts believe that the pressure is unlikely to ease soon. The headline number is expected to remain in double digits throughout FY22.
Nevertheless, there is a silver lining. The momentum in some categories has slowed. The month-on-month rise in core inflation is now at a four-month low, pointed out analysts at Icra Ltd. “We expect the YoY core inflation to record a further modest uptick in July 2021, before commencing a gradual downtrend from August 2021 onwards," said Aditi Nayar, chief economist at the rating agency in an emailed response.
While the Reserve Bank of India (RBI) tracks the retail inflation for policy purposes, the elevated WPI inflation should give it discomfort. And though it may not move the needle in terms of withdrawal of policy accommodation, the WPI gives the central bank one more reason to move towards withdrawal. After all, it requires only the event of a demand boost for producers to pass on their input costs to consumers. The gap between the WPI and the consumer price index inflation may begin to narrow in the coming months. The odds of retail inflation rising are higher than wholesale easing to the CPI level.
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