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WPI inflation moderated to 12.1% YoY in Jun’21…

…on lower inflation in ‘food’ and ‘fuel and power’

* After rising consistently for five straight months, WPI inflation moderated to 12.1% YoY in Jun’21, against 12.8% YoY in May’21 and -1.8% YoY in Jun’20. This was on account of lower inflation in ‘food’ (primary and manufactured) and ‘fuel and power’ during the month. The number came in marginally below our expectations as well as the Bloomberg consensus of 12.2%.

* ‘Primary articles’ WPI inflation came in at 7.7% YoY in Jun’21 (v/s 9.6% YoY in May’21) on lower inflation in ‘primary food articles’ and three-month low inflation in ‘crude oil’ and ‘natural gas’. WPI inflation in ‘fuel and power’ (WPI weight: 13.2%) also came in lower at 32.9% YoY in Jun’21 (v/s 37.6% YoY in May’21) on lower inflation in mineral oils.

* On the contrary, WPI inflation in ‘manufactured items’ (WPI weight: 64.2%) remained unchanged at 10.9% YoY in Jun’21. ‘Manufactured food items’ within this category moderated to 13.4% YoY in Jun’21 (v/s 15.2% YoY in May’21), but ‘nonfood manufactured products’ (core WPI) inflation rose to 10.4% YoY in Jun’21 (v/s 10% YoY in May’21).

* Consequently, WPI food inflation stood at 6.6% YoY in Jun’21 vis-à-vis 8.1% YoY in May’21

* However, WPI inflation rose 80bps on a monthly basis in Jun’21, against a 50bps MoM change seen in May’21 – due to a higher MoM change in ‘primary articles’ and ‘fuel and power’. While ‘primary articles’ grew 0.9% MoM in Jun’21 (v/s - 0.7% MoM in May’21), ‘fuel and power’ grew 2.5% MoM last month (v/s 1.5% MoM in May’21). The MoM change in ‘manufactured items’, on the other hand, moderated to 30bps in Jun’21 (v/s 90 bps in May’21). This indicates upward price pressure was still high for ~36% of the WPI index despite several states easing their lockdown rules in Jun’21 (v/s relatively stricter rules implemented in May’21).

* Overall, with lower WPI in Jun’21, along with flat CPI inflation (both in YoY terms), we believe inflation has peaked out. We expect CPI inflation to fall below 6% in Jul’21, although much would depend on the trajectory of COVID cases and vaccination in the coming months.

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