Aditi Nayar, Chief Economist and Head of Research and Outreach at ICRA Ltd., has provided insights into the recent trends in Wholesale Price Index (WPI) inflation. According to Nayar, WPI inflation doubled to a 15-month high of 2.6% in May 2024 from 1.3% in April 2024. This increase was driven by an adverse base effect, with all major sub-indices, except for fuel and power, experiencing either higher year-on-year (YoY) inflation or a reduction in deflation. Notably, the core-WPI (non-food manufacturing WPI) returned to inflationary territory in May 2024 after a 14-month gap, contributing 57 basis points to the 130 basis points rise in the headline figure compared to April 2024.
Nayar highlighted the uneven progress of the Southwest Monsoon up to June 13, 2024, which has resulted in excess rainfall in the Southern region and deficient rainfall in Northwest, East, and Northeast India, amid heatwave conditions in these regions.
She highlighted the importance of well-distributed rainfall to support the timely onset of kharif sowing across states and to replenish reservoir levels, which are crucial for controlling food inflation. The awaited Minimum Support Prices (MSPs) for kharif crops will also influence sowing trends.
For June 2024, the YoY inflation prints for a majority of food items, including edible oils, cereals, and some vegetables, have trended lower compared to May 2024. As a result, WPI-food inflation is expected to soften in June 2024.
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. This will help contain the rise in YoY WPI inflation, countering the adverse base effect. Overall, ICRA expects the headline WPI inflation to inch up modestly to around 3.0% in June 2024, compared to -4.2% in June 2023.
