Explainer: How the wholesale price inflation rate of 5.77% affects you

Inflation based on wholesale prices rose to 5.77 percent in June on increasing prices of vegetables and fuel items.

By Elton Gomes

Inflation based on wholesale prices rose to 5.77% in June on account of increasing prices of vegetables and fuel items. The wholesale price index (WPI) based inflation rate was 4.43% in May this year. In June 2017, the rate stood at 0.90%.

News agency PTI cited government data released on Tuesday, and reported that inflation in food articles was at 1.8% in June 2018. In May 2018, the inflation rate stood was 1.60%. It was further reported that inflation in vegetables increased from 2.51% in May to a whopping 8.12% in June.

Inflation in the fuel and power sector also witnessed a sharp rise – from 11.22% in May to 16.18% in June. The rise has been attributed to increasing prices of domestic fuel and rising crude oil prices globally. Potato inflation stood at a peak rate of 99.02% in contrast to being 81.93% in May. The month of June also saw a price rise in onions. In May, the price rise on onion was 13.20%, but in June, the price rise stood at 18.25%.

Wholesale inflation rate, which is measured by the wholesale price index (WPI), is an indicator of price movements and largely mirrors trends in shop-end prices. “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 Aditi Nayar, Principal Economist at ICRA, as reported by MoneyControl.

Primary articles, which constitute more than one-fifth of the entire wholesale price index, saw a surge in prices from 3.16% in May to 5.3% in June. This was due to higher prices of cereals, wheat, vegetables, potatoes, non-food articles, fibers, and minerals.

The real upward surge in wholesale inflation was due to crude petroleum and natural gas. Inflation in these areas saw a rise from 26.9% in May to 48.7% in June. Over the same period, the fuel and power segment witnessed inflation speed up to 16.2% from 11.2%. In manufacturing, wholesale inflation rose to 4.17% in June, while in May, the inflation rate stood at 3.73%.

According to a PTI report, deflation continued in pulses at 20.23% in June. Data released last week revealed that retail inflation touched a five-month high of 5% in June on costlier fuel. The Reserve Bank of India (RBI) mainly takes into account retail inflation data while formulating its monetary policies. For the period of October to March, the RBI has already revised its retail inflation projection from 4.4% to 4.7%.

Elton Gomes is a staff writer at Qrius