India's wholesale price index increased by 5.09 percent on the year in July, down from 5.77 percent in June and below the consensus forecast of 5.24 percent. The index advanced 0.42 percent on the month, after an increase of 1.10 percent previously. Today's data follows the release earlier in the week of CPI data showing a similar fall in consumer inflation from 4.92 percent in June to 4.17 percent in July, closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.
The decline in WPI inflation in July was driven by food prices, which account for around 15 percent of the index. These dropped 2.16 percent on the year after rising 1.80 percent in June, with vegetable prices falling by 14.07 percent after an increase of 8.12 percent previously. Price gains strengthened in other major categories. The year-on-year increase in fuel and power prices (around 13 percent of the index) picked up from 16.18 percent in June to 18.10 percent in July, while inflation for manufactured products (around 64 percent of the total index) increased from 4.17 percent to 4.26 percent.
At their latest policy review, held earlier the month, the RBI's Monetary Policy Committee increased policy rates by 25 basis points, as they did in the previous meeting in June. Although officials' inflation forecasts are little changed from those made at the time of the June policy meeting, they identify several upside risks, including the prospect of increases in global oil prices and the potential impact on food prices of regional patterns in monsoonal rainfall. Public-sector wage increases and government-mandated price supports for key crops are also identified as factors that could push headline inflation higher than currently forecast.
Curbing price pressures is the clearly the main current priority for RBI officials, with recent rate hikes justified on the basis of their "commitment to achieving the medium-term target for headline inflation of 4.0 per cent on a durable basis". The fall in headline measures of inflation in July, if sustained in the next few months, may convince officials to leave policy rates on hold for now, with the next policy review scheduled for early October.