Producers’ inflation based on Wholesale Price Index (WPI) dropped to 11.16 per cent in the month of July. It was little over 12 per cent in the month of June.

Experts feel though the rate of inflation has peaked, it will still continue to be in double digit a few months at least. This means RBI’s Monetary Policy Committee (MPI) is unlikely to get any comfort on this front. Also, the possibility of inflationary expectation during festival season or even after that will not provide any cushion for interest rate revision.

According to the office of the Economic Advisor in the Department for Promotion of Industry and Internal Trade (DPIIT), 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 as compared to the corresponding month of the previous year.

Wholesale price inflation down a bit, but still over 12 per cent

Aditi Nayar, Chief Economist with ICRA said that softening of food price pressure and the uncertainty related to the Delta plus variant and arresting the rise in commodity prices have had an impact on overall rate of inflation. Although the monsoon rains have been a considerable 32 per cent below normal in August 2021, kharif sowing has gathered pace and the gap with the year-ago level has eased to 1.8 per cent as of August 13, from 4.7 per cent two weeks earlier.

“Late sowing will boost acreage, although the uneven rainfall may not be supportive of a rise in yields. With rising tomato prices posing some concern, we expect the wholesale food index to record a mild inflation in August 2021, before slipping into disinflation for the next few prints, aided by the base effect,” she said.

The average international crude oil price, in Indian basket terms, has declined by 3.4 per cent to $71/barrel during August 1-11 from $73.5/barrel in July 2021, after OPEC and others agreed to gradually increase the supply from August 2021. Moreover, the uncertainty regarding the spread of the Delta variant across the globe has contributed to lower crude oil prices.

“The headline WPI inflation is expected to remain in double-digits until October and therefore its softening over the last two months is unlikely to provide any material comfort to the monetary policy committee,” she said.

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