WPI inflation rises to 4-year high of 5.77 per cent

New Delhi: The wholesale inflation jumped to over 4-year high of 5.77 per cent in June due to soaring fuel prices, raising chances of rate hike by the RBI in its monetary policy review next month.

Inflation was at 4.43 per cent in May and at 3.02 per cent during the start of the year in January.

In June, vegetable inflation came at 8.12 per cent against 2.51 per cent in May hitting the common man.  The potato inflation in June rose by 99.02 per cent against 81.93 per cent in May. Onion inflation too rose by 18.25 per cent in June against 13.20 per cent in May.

However, inflation in fruits came at 3.87 per cent in June against 15.40 per cent in May. LPG prices were high by 15.40 per cent in June, petrol by 17.45 per cent and diesel by 21.63 per cent.

“The lagged transmission of higher crude oil prices, an uptick in cotton prices and electricity tariffs, the hardening of inflation for manufactured products as well as an unfavourable base effect, led to the sharp pickup in the WPI inflation to a 54 month high in June 2018,” said Icra’s Aditi Nayar.

She said that hardening of the WPI inflation in June 2018 relative to the previous month was pervasive, led by all the major sub-sectors of the WPI. “While the outlook for the WPI inflation would be influenced by commodity prices, rupee movement, effectiveness of MSPs and the dispersion of the monsoons, an easing of the base effect should cool the WPI inflation for July 2018 to some extent. The sharper than expected uptick in the WPI inflation in June 2018 reinforces our expectation of a likely repo rate hike at the next MPC meeting in August 2018,” she added.

Ind-Ra principal economist Sunil Kumar Sinha said that even core inflation has shown a sustained increase over the past three months.

“Higher core inflation is often interpreted as indication of reduction in output gap in the economy.  However, situation appears to be more complex. On the one hand industrial growth slowed to a seven-month low in May 2018 and several manufacturing sectors are still saddled with excess capacity and on the other hand core sector inflation at 4.8  per cent is the highest print in the new WPI series,” said Mr Sinha.