Perspective on WPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
Below the Perspective on WPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
“June WPI inflation rose to 9.9% from 9.7% in the last month, on account of an uptick in inflation in primary articles. Food prices have shown an uptick, with heatwaves across several regions and a delayed monsoon likely exerting upward pressure on food prices. Although inflation in the fuel and power category moderated following the recent correction in global energy prices, it remained at elevated levels, limiting the extent of the easing in overall WPI inflation. Going forward, the trajectory of fuel and power inflation will continue to hinge on global energy markets and evolving geopolitical developments. In line with WPI inflation, output PPI inflation has also inched up marginally to 9.6% in June from 9.4% in May.
Looking ahead, the inflation outlook remains subject to risks from external uncertainties and weather-related disruptions. The US-Iran Memorandum of Understanding (MoU), signed in mid-June, provided short-term relief. However, recent flare-ups have renewed geopolitical concerns resulting in volatility in brent crude prices. On the domestic front, inflation risks stem from below-normal rainfall and the increasing likelihood of El Nino strengthening during the second half of the monsoon season. Food prices particularly vegetables, pulses, and edible oils remain the most vulnerable to weather-related disruptions and warrant close monitoring. Taking these factors into account, we project WPI inflation to average around 7% in FY27.
It is to be noted that India is relatively better positioned than during previous El Nino episodes, supported by higher reservoir levels and comfortable foodgrain buffer stocks. Moreover, historical experience suggests that not all El Nino years have resulted in a sharp rise in food inflation. The extent of any increase will depend on government supply-side interventions as well as the spatial and temporal distribution of rainfall.”
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