India’s wholesale prices remain in deflationary territory for third successive month in June

The decline in the inflation rate in June is primarily due to a fall in prices of mineral oils, food products
| Photo Credit: Reuters

India’s wholesale prices remained in deflationary territory for the third successive month in June, with the pace of price contraction from a year ago quickening to -4.12% from -3.48% in May.

This is the sharpest contraction in wholesale prices in about eight years, and was largely aided by the base effects from last June when wholesale price inflation was 16.2%, and some deceleration in commodity prices.

Some food items such as milk, cereals, pulses and wheat, reported high inflation rates in the range of 8%-9%. Vegetables reported 22% deflation year-on-year, but prices were up 13.2% in June, when compared to May.

While fuel and power inflation rate skidded to -12.6% in June from -9.2% in May, the dip in prices in other categories was milder, with the Food Index down just 1.2% compared to -1.6% in May. Sequentially, however, wholesale food prices were up 1.4% from May.

Deflation in primary articles’ prices moved to -2.9% from -1.8% in May, but their prices inched up 0.6% from May. Manufactured products’ prices fell 2.7% from last June and 0.5% from May 2023 levels.

The Commerce and Industry Ministry said the decline in the inflation rate in June is primarily due to a fall in prices of mineral oils, food products, basic metals, crude petroleum & natural gas and textiles. The ministry also revised upward the inflation rate for April 2023 to -0.79% from -0.90% estimated earlier.

Rating firm ICRA reckoned that the deflation in the WPI will ease to 2%-2.5% in July with global commodity prices seeing a sequential rise of 1.2% so far this month. The surge in prices of vegetables, with a “moderate hardening in cereals and pulses” due to supply disruptions amid excess rainfall, along with the lag in sowing of major crops and the onset of El Nino conditions impart uncertainty to the food inflation outlook, it noted.

“The moderation in food inflation in year-on-year terms masks the sequential price rise: The month-on-month increase in food prices was similar to that seen in retail inflation data for June,” said a research note by Barclays’ analysts, which said food prices surged across the board in June, except in the case of fruits and oilseeds.

The gap between retail inflation, which hit a three-month high of 4.8% in June, and wholesale inflation has now widened to 893 basis points, the highest since June 2022, and economists expect the deflation in wholesale prices to help moderate retail prices with a lag.

One basis point equals 0.01%.