Inflation based on the wholesale price index (WPI) slipped to a 14-month low of 0.90 % in June as food inflation remained negative and prices of manufactured items rose at their weakest pace in the past 11 months.
WPI had been on a downward trend since February and had stood at a five-month low of 2.17% in May.
However, official data released on Friday showed that, in June, it was forced even downwards by continued deflationary pressure in the crucial food segment which had begun in May.
Subsequently, prices of important crops like potato, vegetables and pulses saw steeper drops in June. Potato prices fell by a massive 47% while pulses and vegetables saw prices falling by more than 25% and 21%, respectively.
The steep drop in prices can be tied to the growing farmers’ agitation movements across large parts of Madhya Pradesh and Rajasthan, where farmers have complained of incomes crashing due to the fall in prices of their crops.
Onion prices, however, fell at a slower clip of 9% after the 12 per cent fall seen in May.
The manufactured segment, which commands nearly 65% weightage in the index, saw prices rising by 2.27% in June as compared to 2.55% in May, the slowest in 11 months.
Among the two largest sub-indices within the segment – manufacturing of food products continued to slow inflation while that for basic metals saw the rate picking up at 7.92%.
Fuel inflation also continued to decline for the fifth straight month. It registered a rise of 5.28 % down from 11.69 % rise seen in May.
The June figures for the WPI represent the second instance that wholesale inflation is being calculated according to the new series with the updated base year of 2011-12.
The new WPI series adopts a more recent base year and is now aligned with the gross domestic product (GDP) and index of industrial production (IIP) — also revised — series. This allows for a more meaningful comparison of the parameter, including the GDP deflator measure. This base year revision also allows items (such as natural gas, petroleum coke) to be included, the production share of which have increased over time.
Apart from this, the series removes the excise duty component from prices, bringing the measure closer to the producer price index and, at the same time, making it less responsive to changes in tax rates.
In the new WPI series, the number of items covered has increased from 676 to 697. In all, 199 new items have been added and 146 old items have been dropped.
Among the primary articles, new vegetables and fruit such as radish, carrot, cucumber, bitter gourd, mousambi (sweet lime), pomegranate, jackfruit, and pear have been added. In the mineral group, items like copper concentrate, lead concentrate and garnet have been added, whereas copper ore, gypsum, kaolin, dolomite, and magnesite have been taken out. Natural gas has been added as a new item.
Among manufacturing items, around 173 new items such as conveyor belt, rubber tread, steel cables, tissue paper, and wooden splint have been added, while 135 items like khandsari (unrefined raw white sugar), poppadom, and video CD players have been dropped.
The weight of manufactured items has decreased to 64.2% in the WPI in the new series from 64.9% in old series, and fuel and power to 13.1% from 14.9%, while those of primary items rose to 22.6% from 20.1%.