Wholesale inflation jumps to16-month high

India’s wholesale inflation jumped to a 16-month high of 3.4% in June, driven by a surge in the prices of food articles and manufactured goods, government data showed.

The Wholesale Price Index, a proxy for producer prices, which has been in positive territory since November last year, was at 2.6% in May this year and at -4.2% in June a year ago.

The WPI-Food inflation that constitutes primary food articles and manufactured food items rose for a fifth consecutive month to a 22-month high of 8.7% in June against -1.3% a year ago and 7.4% in May.

The inflation in crude petroleum and natural gas increased sharply to a nine-month high of 12.6% in June against -21.4% in June last year and 9.8% in May this year on account of the base effect.

Going ahead, WPI inflation is likely to soften to 2% next month, aided by a favorable base and the cooling in global commodity prices, analysts said.

“While the unexpected surge in rainfall over the past two weeks has pushed up domestic food prices in sequential terms in July, global commodity prices barring crude oil have displayed softening in this month, as reflected in the Bloomberg Commodity Index (month-on-month: -1.6%; and year-on-year: -3.4% up to 12 July),” ICRA chief economist and head of research and outreach Aditi Nayar said in a report.

“The international crude oil prices have been volatile in the ongoing month, owing to demand-supply mismatches, and the sequential uptick of 4.8% in such prices (up to 11 July) is likely to exert some pressure on the WPI inflation in the ongoing month. Nevertheless, as the low base wears off, the WPI inflation is projected to dip to 2%,” she added.

Government data released last week showed retail inflation, or the Consumer Price Index (CPI), rose to a four-month high of 5.1% in June, entirely driven by food and beverages even as inflation in other sub-groups stayed below the 4%-mark.

Going forward, the high base of 7.4% in July last year may soften the CPI inflation print to 2.5-3% this month, but sustained heavy rains can harm kharif crops that are already sown, and further push up perishable prices, ICRA cautioned.

The Reserve Bank of India’s monetary policy committee (MPC) may stay put on interest rates when it meets next month, ICRA said, adding that a change in stance cannot be ruled out in October, followed by a 25 basis points cut each in December and February 2025, with an extended pause thereafter, on the condition that food inflation turns favorable following a normal monsoon, and the lack of other global or domestic shocks.

Trade deficit narrows in June

India’s goods trade deficit, which had ballooned to a seven-month high in May, narrowed in June on lower imports, data released by the commerce ministry showed.

While merchandise goods exports rose to $35.2 billion in June from $34.32 billion a year ago, imports widened to $56.18 from $53.51 a year ago, leading to a trade deficit of $20.98 billion, down from $23.78 billion in May and up from $19.19 billion a year ago.

For the fiscal first quarter between April-to-June, India’s overall exports (including services) are projected at $200.33 billion, up 8.6% from a year ago, while imports are estimated at $222.89 Billion, or a growth of 8.47%.

The latest data for services released by RBI is for May, with the data for June being an estimation, which will be revised based on RBI’s subsequent release.

Commerce secretary Sunil Barthwal projected that India’s total exports of goods and services are expected to cross $800 billion during the current fiscal.

“The trend is positive. Exports in the first quarter are the highest in 10 years,” he said, adding that growth in goods exports during the June quarter was driven by engineering goods, electronics and pharmaceuticals.