ICRA expects wholesale inflation to inch up to 3% in June

Wholesale inflation in India, based on the Wholesale Price Index doubled to 2.61 per cent in May versus 1.26 reported in April, official data from the Commerce Ministry showed on Friday.

Rating agency ICRA expects headline wholesale inflation to inch up modestly to 3 per cent in June 2024.

"The progress of the Southwest Monsoon has been quite uneven so far up to June 13, 2024, with excess rainfall in the Southern region, and a deficient rainfall in Northwest and East and Northeast India, amid heatwave conditions in these regions," said Aditi Nayar, Chief Economist, Head of Research and Outreach, ICRA.

"Well-distributed rainfall would be crucial to support the timely onset of kharif sowing across states, as well as replenish the reservoir levels, which are essential to keep a check on food inflation.

In addition, MSPs for the kharif crops are awaited, which would also influence the sowing trends."

Asserting that the global commodity prices, including those for the Indian basket of crude oil, have also retreated on a month-on-month basis in June 2024 so far, Nayar said it would help contain the uptick in the wholesale inflation print.

With an unfavourable base, all the major sub-indices barring fuel and power, witnessed either a higher year-on-year inflation print or a lower deflation in May.

The high rate of wholesale inflation in May was primarily due to an increase in prices of food articles and minerals. In the food basket, cereals, paddy, pulses, vegetables, potato, onion, fruits, all spiked.

Also, high inflation in May was triggered due to an increase in prices of manufacture of food products, crude petroleum and natural gas, mineral oils, and other manufacturing.

Economists often say a little rise in wholesale inflation is good as it typically incentivizes goods manufacturers to produce more.

Wholesale food prices in particular have skyrocketed month-on-month in May, with official data showing that the Whole Price Index for food rising from 5.52 per cent in April to 7.40 per cent in May.

In April last year, the wholesale inflation went into negative territory.

Similarly, in the initial days of COVID-19, in July 2020, the WPI was reported negative.

Overall wholesale inflation was 8.39 per cent in October 2022 and has fallen since then.

Notably, the wholesale price index (WPI)--based inflation had been in double digits for 18 months in a row till September 2022.

The government releases index numbers of wholesale prices on a monthly basis on the 14th of every month (or the next working day).

The index numbers are compiled with data received from institutional sources and selected manufacturing units across the country.

Going ahead, food price uncertainties would continue to weigh on the inflation outlook.

Pressure in food prices has been interrupting the ongoing disinflation process in India, and posing challenges for the final descent of inflation trajectory to the 4 per cent retail inflation target.