Softening global commodities pull down the wholesale price index in June despite a surge in food prices

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After hitting a peak of 15.88 percent in May, wholesale prices of commodities and services measured by the Wholesale Price Index (WPI) eased to 15.18 percent in June on softening global commodity prices, data compiled by the Ministry of Commerce and Industry showed. The WPI in June 2021 was reported at 12.07 percent.

Barring the food index, other sub-heads such as manufacturing and fuel, registered deceleration in inflation in June. A recent World Bank report reveals that international commodity prices have been on a downtrend since May this year. On a sequential monthly basis, WPI print was flat following a 1.4 percent rise seen in May 2022. The WPI remained in the double-digit for the 15th consecutive month in a row beginning April 2021.

“The high rate of WPI inflation in June 2022 can be attributed primarily to the rise in the prices of mineral oils, food articles, crude petroleum and natural gas, basic metals, chemicals, and chemical products, etc. compared to the comparable month of the previous year,” the Ministry said in a press release.

Food inflation in June continued to inch up and reached 12.4 percent from 10.9 percent in May owing to the jump in the prices of fruits (20.3 percent in June versus 10 percent in May) and continued pressure on vegetable prices (56.7 percent versus 56.4 percent). Even prices of milk (6.3 percent versus 5.8 percent) and eggs (11 percent versus 8.9 percent) went up. Prices of vegetables jumped significantly in June due to supply disruptions from farm to mandis on account of the onset of the monsoon rainfall.

“Overall food inflation continued its northward journey in June owing to a jump in the prices of fruits, vegetables, and protein products like milk and eggs,” said Madan Sabnavis, Chief Economist, Bank of Baroda in a report.

Cereals prices remained steady at 8 percent growth. While paddy prices inched up to 2.4 percent from 1.8 percent earlier, wheat prices moderated to 10.3 percent from 10.5 percent. These trends, however, were similar to the movement in international prices. World Bank’s pink sheet shows that contraction in international rice prices has been coming down with a 6 percent decline seen in June versus a 7.6 percent dip witnessed in May. On the other hand, international prices of wheat have seen a moderation in June.

Rajani Sinha, Chief Economist, Care Ratings Ltd, said, “Wholesale inflation remained elevated above 15 percent for the third straight month in June, driven by higher food and fuel prices. Subsequently, the wholesale price index was unchanged as moderation in manufactured products inflation on the back of the government’s supply-side measures and easing of global metal prices countered the higher food and fuel inflation.”

Meanwhile, fuel and power inflation moderated marginally in June to 40.4 percent compared to 40.6 percent in May this year. A sharp dip in the mineral oil index (57.5 percent in June versus 61.9 percent in May) was countered by the increase in electricity prices (24.4 percent versus 16.2 percent). Coal prices, on the other hand, remained unchanged at 2.8 percent. The international price of coal also moderated for the second consecutive month in June (135 percent versus 171 percent in May).

According to Sinha, while the easing of many of the global commodity prices is a comforting factor, volatile crude oil prices and the weakening of the rupee against the dollar continue to pose an upside risk to the wholesale inflation number. “Food inflation will continue to inch higher due to accelerating vegetable prices. Consequently, we expect WPI to remain double-digit till the second quarter of this fiscal,” she added.

The ministry data showed a decline in manufactured product inflation at 9.2 percent in June from 10.1 percent in May. Of the 22 commodity sub-indices, 9 indices rose at a slower pace in June than in May led by basic metals, fabricated metal products, computer, and electronic products, machinery and equipment, motor vehicles, furniture, and other manufacturing items.