India's wholesale price-based inflation, a key measure of price pressures in the economy, has remained in negative territory for the second month in a row. Official data released on Monday shows the Wholesale Price Index (WPI) contracted by 0.26% in June 2024, continuing a trend of easing wholesale prices.
Breaking Down the June 2024 WPI Numbers
The negative print of -0.26% for June follows a deflation rate of -0.92% in May 2024. This data, published by the Ministry of Commerce & Industry, indicates a sustained period of softening prices at the wholesale level. A year ago, in June 2023, the scenario was starkly different, with the WPI inflation standing at a negative -4.18%.
The decline in the overall index was primarily led by significant drops in two major categories. Food prices witnessed a notable deflation of 1.40% in June compared to the same month last year. Similarly, prices for fuel and power contracted by 3.70%, providing substantial downward pressure on the headline number.
Contrasting Trends in Manufactured Goods and Food Items
While food and fuel prices fell, the story was different for manufactured products. This category, which carries significant weight in the index, saw a positive inflation of 0.79% in June 2024. This indicates that price pressures in factory gate goods persist, even as raw material costs in other sectors ease.
Delving deeper into food items, the data reveals a mixed basket. Prices for vegetables plummeted by 21.93%, and pulses became cheaper by 16.25%. Eggs, meat, and fish also saw a decline of 4.24%. However, not all food items followed this deflationary trend. Fruit prices surged by 31.17%, and onions became more expensive by 45.33%. Potatoes, a staple, witnessed a massive price jump of 75.91% year-on-year, highlighting ongoing volatility in specific segments of the food economy.
Economic Implications and the Inflation Outlook
The consecutive months of negative WPI inflation, or wholesale deflation, present a complex picture for policymakers. On one hand, it eases input cost pressures for businesses, which could eventually translate to lower prices for consumers. On the other hand, sustained deflation can signal weak demand and pose challenges for economic growth.
This wholesale deflation trend stands in contrast to the retail inflation measured by the Consumer Price Index (CPI), which remains positive and within the Reserve Bank of India's (RBI) tolerance band. The RBI primarily monitors CPI for its monetary policy decisions. The divergence between WPI and CPI is often attributed to differences in the composition of the baskets and the inclusion of taxes and trade margins in retail prices.
Analysts suggest that the negative WPI, driven by lower global commodity prices and a high base effect from last year, may provide some breathing room for the economy. However, the sharp inflation in specific food items like potatoes and onions remains a concern for household budgets and could keep retail food inflation elevated. The coming months will be crucial to see if this deflationary trend at the wholesale level sustains and what its broader impact on the Indian economy will be.
