India's wholesale inflation, as measured by the Wholesale Price Index (WPI), cooled to a three-month low of 2.04 per cent in July from a 16-month high of 3.36 per cent in June, primarily due to a sharp reduction in food prices. Inflation in food prices stood at 3.45 per cent during the month, compared to 10.87 per cent in June.
Data released by the Ministry of Commerce and Industry on Wednesday showed that the prices of other major sub-indices, like manufactured products and fuel and power, witnessed a slightly higher Year-on-Year (Y-o-Y) inflation print in the month.
Within food articles, pressure on factory gate prices eased significantly due to a contraction in the prices of vegetables (-8.93 per cent) and egg, meat and fish (-1.59 per cent). Meanwhile, there was also a slight dip in the prices of onions (88.77 per cent), cereals (8.96 per cent), paddy (10.98 per cent) and pulses (20.27 per cent).
On the other hand, the prices of potatoes (76.23 per cent) and fruits (15.62 per cent) rose during the month.
Manufactured products, which have a weightage of 64.2 per cent in the index, also saw a rise in inflation to 1.58 per cent in July from 1.43 per cent in June. This was led by an rise in the prices of manufactured beverages (2.14 per cent), tobacco (2.31 per cent), textiles (2.09 per cent), wood products (3.53 per cent) and pharmaceuticals (2.05 per cent), among others.
Factory gate prices for fuel and power (1.72 per cent) also accelerated in July as the prices of cooking gas (6.06 per cent) rose sharply. The prices of high-speed diesel (-1.65 per cent) and petrol (-0.64 per cent) remained in contraction during the month but showed some increase.
This cooldown in factory gate inflation comes days after the high base effect and reduction in food prices pushed the retail inflation rate to a nearly five-year low of 3.54 per cent in July. Although the Reserve Bank of India (RBI) tracks retail inflation for its monetary policy, the reduction in WPI may help in keeping retail inflation low, albeit with a time lag.