India’s WPI inflation falls 3.21% in May, but food prices rise

Wholesale prices in India witnessed a deflation of 3.21 per cent in May due to sharp decline in prices of fuel and power, even as food articles turned expensive.

“The annual rate of inflation, based on monthly Wholesale Price Index (WPI), stood at (-) 3.21 per cent (provisional) for May 2020 as compared to 2.79 per cent during the corresponding month of the previous year,” the commerce and industry ministry said in a statement.

Inflation in food articles during May stood at 1.13 per cent, as against 2.55 per cent in April. In fuel and power basket, deflation stood at 19.83 per cent in May, as against 10.12 per cent in the previous month.

India’s annual WPI Food Index eased to 2.31 per cent in May from a rise of 3.60 per cent in April, official data showed on Monday.

However, the Centre did not release the complete set of WPI figures for May due to the Covid-19 outbreak and its impact on data collection.

Besides, the data showed that overall Wholesale Price Index (WPI) recorded a fall of (-) 3.21 per cent in May 2020 from 0.42 per cent rise in March.

In a note, the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade said: “Due to limited information available for the month of April 2020, the provisional figures of May-2020 are compared with final figures of March, 2020.” “The official Wholesale Price Index for ‘All Commodities’ (Base: 2011-12=100) for the month of May, 2020 declined by (-2.24 per cent) to 117.7 (provisional) from 120.4 (Final) for the month of March, 2020.” ConsumeRsare unlikely to get respite from the rising price of auto fuels − petrol and diesel as oil companies plan to cover their entire gap of around Rs8 per litre on sale of the two petroleum products by raising retail prices daily for at least next two weeks.

But the quantum of increase may fall from around 60 paise per litre, giving some respite to consumeRsin midst of several disruptions due to Covid-19 pandemic.

After 83 days break since March 16, oil marketing companies have started raising petrol and diesel prices daily from June 7. In the nine days since then, petrol prices have risen by Rs5 per litre while diesel prices have gone up by Rs5.23 per litre.

Petrol price increased by 48 paise and diesel by 59 paise per litre to Rs76.26 and Rs74.62 per litre respectively on Monday in the national capital.

Sources in public sector oil companies said that petroleum products may continue its daily upward movement till the end of the month or earlier but from now on the increase may be lesser by around 30-40 paise per litre.

“Global oil prices have again fallen below $40 a barrel and product prices have also decreased marginally. If this holds, there could actually be a reduction in petrol and diesel prices from next month,” the official earlier said.

As per a report from ICICI securities, while the current retail price hikes are encouraging, further price hike of Rs5.5 per litre (7-8 per cent) is needed if net margin of oil marketing companies is to recover to Rs1.19 per litre on July 1, 2020.

While prices have now gone up by over Rs5 per litre, the projected fall in OMCs net marketing margin would need petrol and diesel prices to rise by another Rs4-5 a litre to make margins again.

The OMCs could also get support from global oil market where crude prices have dropped to below $40 a barrel now. If this sustains, there is a possibility that petrol and diesel prices may actually begin to fall from July.

Net auto fuel marketing margins are back in the black at Rs0.2 per litre from minus Rs1.28 per litre on June 6, 2020 due to retail price hikes. It has covered further ground after nine days of increase in auto fuel prices.

Net marketing margin of OMCs slipped into the red to minus Rs1.28 per litre during June 1-6, 2020 due to surge in refinery transfer price (RTP) by Rs5.6-7.1 per litre from the low on May 1, 2020 and hike in excise duty by Rs10-13 per litre, which was absorbed by OMCs.

Net margin would be Rs6.09 per litre in Q1FY21E if price hikes are made, but Rs5.18 per litre if no further hikes are made. If price hikes are made, net margin may be Rs2.17 per litre (down 2 per cent YoY) in FY21E assuming it at Rs1.19 per litre in Q2-Q4.

Agencies