Experts said the continuing double-digit WPI inflation and its potential future spillovers into the retail inflation could inject uneasiness into the tone of monetary policy.

Vegetables kept for saleImage for representation
Money Economy Thursday, July 15, 2021 - 11:57

The wholesale price-based inflation eased marginally to 12.07 per cent in June as crude oil and food items witnessed some softening in prices. However, WPI inflation remained in double-digit for the third consecutive month in June, mainly due to a low base of last year. WPI inflation was at (-) 1.81 per cent, in June 2020. In May 2021, the inflation was at a record high of 12.94 per cent.

Experts said the continuing double-digit WPI inflation and its potential future spillovers into the retail inflation could inject uneasiness into the tone of monetary policy and noted that WPI is expected to remain at an elevated level till October 2021.

Snapping the five straight months of uptick, wholesale price index (WPI)-based inflation in June softened as prices of food articles and crude oil eased, even though manufactured products hardened. "The annual rate of inflation is 12.07 per cent for the month of June, 2021 (over June, 2020) as compared to ( ) 1.81 per cent in June 2020.

"The high rate of inflation in June 2021, is primarily due to low base effect and rise in prices of mineral oils, viz. petrol, diesel (HSD), naphtha, ATF, furnace oil etc, and manufactured products like basic metal, food products, chemical products etc, as compared to the corresponding month of the previous year," the Commerce and Industry Ministry said.

Inflation in fuel and power basket eased to 32.83 per cent during June, against 37.61 per cent in May. Inflation in food articles too, eased to 3.09 per cent in June, from 4.31 per cent May, even as onion prices spiked. In manufactured products, inflation stood at 10.88 per cent in June, as against 10.83 per cent in the previous month.

The Reserve Bank of India in its monetary policy last month kept interest rates unchanged at record lows and committed to maintain an accommodative policy stance to support growth.

Retail inflation remained above the RBI's comfort level of 6 per cent for two straight months at 6.26 per cent in June, data released earlier this week showed.

ICRA Chief Economist Aditi Nayar said the headline WPI inflation is expected to continue to soften, while remaining in double-digits in the September quarter. "With the CPI inflation likely to have peaked, we expect policy normalisation to commence in Q4 FY2022, after the growth revival solidifies," Nayar said.

Industry chamber PHDCCI President Sanjay Aggarwal said significantly high fuel and power inflation is escalating the input costs of the industry and its competitiveness in the domestic and international markets. "At this juncture, we urge the government to consider petroleum products in the ambit of GST to rationalise the prices and to contain the rising inflation," Aggarwal added.

India Ratings and Research Principal Economist Sunil Kumar Sinha said firming of inflation despite weak demand conditions needs some elaboration. "It appears that a large part of the rise in inflation could be attributed to imported inflation. As global commodity prices are a pass through in the Indian economy, price increases in mineral oils, crude petroleum, minerals and basic metals are finding a reflection in the wholesale inflation," he said. India Ratings and Research believes that wholesale inflation will remain elevated till October 2021.

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