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Reuters

Wholesale prices slide further in June

14 July, 2015

Wholesale prices of products remained soft for eighth straight month as June registered lower prices than May despite an increase in food prices, official figures released on Tuesday showed.

Wholesale prices, which have been in a negative territory since December, declined 2.40 per cent in June compared with 2.36 in May. 

The wholesale price index (WPI), a combination of three broad categories—primary articles, fuel and power and manufactured products— captures price movements and demand supply shifts in industry at large besides manufacturing and construction.

Though whole sale prices have been affected more by base effects, structural weaknesses and low demand have also contributed to softening of wholesale inflation. Prices of manufactured products declined 0.8 per cent while those of fuel fell 10 per cent in June. Food inflation, on the other hand, increased to 2.88 per cent—lower than 3.8 per cent in May.

On a monthly basis, the index rose for the fourth straight month by 0.5 per cent to 178.6 in June compared with 177.7 in May with wholesale prices of products rising for all key categories compared with May. Prices of primary articles rose 1.4 per cent,  while prices in the fuel and power category increased by only 0.6 per cent compared with a 3 per cent increase last month. Manufactured products, which accounts for two-thirds of the index, rose 0.1—lower than the 0.2 per cent rise in May. 

The index may fall again given weak global crude prices which surged to $66 per barrel in April and have been trading around $58 due to fears of a slowdown in China.  

WPI and CPI: Diverging trends

WPI, which was the main determinant of monetary policy in the country, was replaced last year by retail inflation or direct index of prices for consumers as the key factor for RBI’s policy decisions. According to consumer price index numbers released on Monday,  inflation rose to 5.4 per cent from 5.01 per cent in May as prices of vegetables and pulses soared dampening hopes of a rate cut in the August meeting.

While the fuel and manufacturing dependent WPI has been falling since November last year, the food dependent CPI has stayed in the 5 per cent range widening the gap between both the series.   

With the earnings of the corporate sector languishing and growth and new investments predicated on further rate cuts, markets are urging for the central bank to not just concentrate on CPI alone for policy decision. The consistent fall in the WPI indicating weak demand in manufacturing sector leaves room for the RBI to cut rates further.

With the RBI expected to meet for the third bi-monthly monetary policy on August 4, what remains to be seen is whether RBI will heed to demands of corporates for another rate cut or will it keep the rates on hold for now given the recent spurt in food prices.


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Wholesale prices slide further in June

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