Wholesale inflation softened for the second consecutive month to 11.16 per cent in July from 12.07 per cent in June, even as prices of manufactured goods and crude oil remained elevated.
Wholesale prices, whose increase or decline is measured in terms of wholesale price index (WPI), had witnessed a deflation of 0.25 per cent in the same month last year.
The high rate of inflation during the reporting month is primarily due to low base effect and rise in prices of crude oil, manufactured products like basic metals, food products, textiles, chemicals and chemical products, the Ministry of Commerce and Industry said in a statement.
The WPI based on food index has also decreased from 6.66 per cent in June to 4.46 per cent in July 2021. However, prices of onion spiked, recording an inflation of 72.01 per cent in July from 64.32 per cent in June 2021.
WPI inflation cooled for the second month in a row benefitting from a favourable base effect, softening of food price pressures, and the uncertainty related to the Delta plus variant arresting the rise in commodity prices, said Aditi Nayar, chief economist at Icra.
“Reflecting the base effect and the supply-side measures taken by the Government related to pulses and oilseeds, the primary food index was flat at the year-ago level in July 2021, after having reported a year on year inflation for the previous five months,” Nayar said.
Inflation in crude petroleum and natural gas was 40.28 per cent in July, against 36.34 per cent in June. Manufactured products -- that account for close to two-third of the index -- inflation stood at 11.20 per cent in July, against 10.88 per cent in the previous month.
The average international crude oil price, in termsof Indian basket, has declined by 3.4 per cent to $71.0/barrel during August 1 to August 11, 2021 from $73.5/barrel in July 2021, after OPEC+ agreed to gradually increase the supply from August 2021 onwards, Nayar said.
The uncertainty regarding the spread of the Delta variant across the globe has also contributed to lower crude oil prices, she added.
Wholesale inflation？has been on a rise since January, with July being the fourth consecutive month in which the inflation has been in double digits.
While the monsoon rains have been a considerable 32 per cent below normal in August 2021, kharif sowing has gathered pace and the gap with the year-ago level has eased to 1.8 per cent as of August 13, 2021 from 4.7 per cent two weeks earlier, Nayar said.
As rising tomato prices is a matter of concern, the wholesale food index is expected to record a mild inflation in August 2021, before slipping into disinflation for the next few prints, aided by the base effect, Nayar said.
The headline WPI inflation is expected to remain in double-digits until October 2021, and therefore its softening over the last two months is unlikely to provide any material comfort to the monetary policy committee, she added.
The Reserve Bank of India, which mainly takes into account retail inflation for its monetary policy, has last week kept the interest rates unchanged. It raised the Consumer Price Index inflation or retail inflation forecast to 5.7 per cent during 2021-22 from its earlier forecast of 5.1 per cent. Retail inflation eased to 5.59 per cent in July falling below the central bank’s upper tolerance limit of 6 per cent.