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Wholesale price inflation eased marginally from May’s over 30-year high but still remained stubbornly elevated at 15.18% in June, suggesting the war on price pressure is going to be long and arduous. Inflation based on the wholesale price index (WPI) has remained in double digits for 15 months now, driven by elevated global commodity prices, especially of oil. With this, the WPI inflation in the June quarter turns out to be 15.48%, a historical high.

Interestingly, part of the slowdown in inflation in the manufactured goods segment can be attributed to just two segments — basic metals and semi-finished steel — that saw the direct or indirect impact of export duties on steel imposed by the government in late May. Data released by the industry ministry on Thursday showed the slight easing of WPI inflation to a three-month low in June was caused by the moderation in manufactured product inflation, which offset the sequential rise in price pressure in food and fuel. The manufacturing inflation eased to 9.19% in June from 10.11% in May, although it still remained sticky.

WPI inflation in basic metals eased to 12.09% in June from 18.88% in the previous month, while that in semi-finished steel eased to 10.73% from 14.62%. Even the minerals segment saw a sharp slowdown in price pressure — from 33.94% in May to 8.55% in June.Given the recent softening of global commodity prices due to fears of recession in advanced economies (Brent crude futures were on track to finish a third session in a row below $100 on July 14), some analysts said the WPI inflation may have peaked. However, it will still remain sticky and may slow down only gradually in the coming months. This is because a weak rupee will make imports more expensive. Much will also hinge on the progress and distribution of monsoon showers.

Icra chief economist Aditi Nayar said they expected WPI inflation to ease to ~13% in July, “reflecting the ongoing correction in global commodity and fuel prices as well as domestic food prices”.

Nayar said the core WPI index declined by 0.7% in month-on-month terms after 24 consecutive months of rises, dampening the year-on-year core inflation to single digits (9.3% in June) after a gap of 13 months.

Importantly, the WPI inflation far outweighs price pressure in retail inflation, which stood at 7.01% in June. The wide divergence also means the pass-through of a recent spurt in input rates to finished product prices will likely continue in the coming months. The still-elevated WPI adds to uncertainties around the overall inflation outlook and raised the possibility of another round of rate hike in August.

Primary food article inflation rose to 14.39% in June from 12.34% in the previous month. The primary articles inflation and fuel & power inflation stood at 19.22% and 40.38%, respectively, in June, compared with 19.71% and 40.62% in the previous month. Price pressure in fruits and vegetables (40.12%, 103-month high) drove up food inflation, according to India Ratings. Rise in price pressure in crude petroleum and natural gas (77.29%) kept the fuel and power inflation elevated.



Author: Howard Caldwell