India’s wholesale price inflation sequentially eases to 11.16% in July

Easing prices of food products, primary articles sequentially decelerated India’s July 2021 wholesale inflation. The annual rate of inflation, based on wholesale prices, was at 11.16 per cent last month from 12.07 per cent in June.

However, on a year-on-year (YoY) basis, the Wholesale Price Index (WPI) data furnished by the Ministry of Commerce and Industry has risen exponentially over July 2020, when it stood at (-) 0.25 per cent.

“The annual rate of inflation is 11.16 per cent (Provisional) for the month of July 2021 (over July 2020) as compared to ((-) 0.25 per cent) in July 2020. The high rate of inflation in July 2021 is primarily due to low base effect and rise in prices of crude petroleum and natural gas, mineral oils, manufactured products like basic metals, food products, textiles, chemicals and chemical products etc. as compared the corresponding month of the previous year,” the ministry said in its review of ‘Index Numbers of Wholesale Price in India’ for July.

On a sequential basis, the expenses on primary articles, which constitute 22.62 per cent of the WPI’s total weightage, increased at a slower rate of 5.72 per cent than 7.74 per cent in June 2021.

Similarly, the prices of food items rose on a slower rate at 4.46 per cent from 6.66 per cent reported for June.

On a YoY basis, the cost of the fuel and power category rose by 26.02 per cent against a rise of (-) 9.84 per cent YoY.

Furthermore, the cost of the manufactured products category rose 11.20 per cent against 0.59 per cent YoY.

“The WPI inflation cooled for the second month in a row to 11.2 per cent in July 2021, modestly trailing our expectation (11.5 per cent), benefitting from a favourable base effect, a welcome softening of food price pressures and the uncertainty related to the Delta plus variant arresting the rise in commodity prices,” ICRA Chief Economist Aditi Nayar said.

India Ratings & Research Principal Economist Sunil Kumar Sinha: “This is partly due to base effect as the WPI witnessed deflation during April-July 2020. However, deflation in WPI has been witnessed earlier also during November 2014-June 2016 but it did not give rise to double digit or high inflation in the following year.”

“The key differentiator is global commodity prices, especially the crude oil prices. Sustained high taxes on petroleum products has worsened the matter even more leading to retail petrol prices breaching the Rs 100 per litre mark at several places. As global commodity prices are a passthrough into the domestic economy this time even the edible and oil seeds are on fire.”

In addition, Acuite Ratings & Research Chief Analytical Officer Suman Chowdhury said: “This is in line with the trajectory of CPI inflation which has moderated to 5.59 per cent in July 2021 from 6.26 per cent in June 2021 reflects the easing of supply constraints due to the unlocking measures steadily undertaken by the state governments.”

“Nevertheless, the index continues to rise on a sequential basis at 0.6 per cent in July 2021 at the same rate as in the previous month, reflecting the continuing impact of high commodity and retail fuel prices and its pass through to the prices of manufactured products.”

Meanwhile the Finance Minister Nirmala Sitharaman said that India’s inflation rate is likely to contained in the range of 2 to 6 per cent.

In July, the Consumer Price Index (CPI) slipped to 5.59 per cent from 6.26 per cent in June.

Speaking on the economy during an interaction with the media, she expressed confidence that the upcoming festive season is expected to be better and revenue is likely to buoyant in the coming months. She noted that vaccinations will enhance confidence of people.

Further, the minister said that demand will pick up as lockdown is lifted in several states.

On the withdrawal of retrospective taxation, Sitharaman said that the rules for the recent taxation amendment bill will be framed soon.

“We will have to wait for the rules to be framed under the recent taxation amendment bill,” she said.

The Taxation Laws (Amendment) Bill, 2021 was passed by the Parliament in the recently concluded Monsoon Session, to do away with the contentious retrospective tax demand provisions and its passage may end the much stretched tax disputes with UK’s Cairn Energy, and Vodafone.

The Bill has amended the Income Tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012 - when the finance bill was passed by the Parliament in 2012.

On the GST compensation issue, Sitharaman said that if GST revenues collection continues like this, then the Centre would be able to pay compensation as per the agreement.