Food Prices Drive Wholesale Inflation to 9.87% in June, Fuel Decline Not Enough

India's wholesale inflation surged to 9.87% in June, the highest in the current series that began in April 2024, as a sharp rise in food prices outweighed a cooling in fuel costs. Data from the Ministry of Commerce and Industry released on Tuesday showed the Wholesale Price Index (WPI) inflation rose from 9.68% in May, continuing an upward trend since November last year.

The June figure is the second reading under the revised WPI series, which uses 2022-23 as the base year and incorporates new calculation methods and a broader basket of goods. Economists noted that the days of low inflation are over, with price pressures becoming more generalised.

Wholesale food inflation jumped to 6.14% in June from 4.49% in May, driven by significant month-on-month price increases for vegetables such as drumstick (46%), capsicum (38%), tomato (33%), and onion (26%). Among meats, beef and buffalo meat prices rose 21%, while eggs were 11% costlier. The month-on-month change in price indices is a key indicator of underlying price momentum.

Meanwhile, fuel and power inflation eased to 27.41% from 30.33% in May, partly offsetting the impact of higher food prices. Economists at Barclays estimated that this decline reduced headline inflation by 41 basis points.

The WPI data comes a day after retail inflation rose to 4.38% in June, the highest in one-and-a-half years, driven by food price increases and the impact of deficient rains and retail fuel price hikes.

Producer price inflation, measured by the new Producer Price Index (PPI), also rose to 9.57% in June from 9.38% in May. The output PPI saw a month-on-month increase of 0.3%, while the input PPI for manufacturing rose sharply by 2.1%, indicating pressure on profit margins.

Looking ahead, economists expect wholesale inflation to moderate slightly to around 9% in July, but risks remain from global commodity prices, monsoon performance, and geopolitical tensions in West Asia.