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WPI inflation slightly lower at 11.2% YoY in Jul’21…

…due to lower inflation in food and ‘fuel and power’

* Wholesale Price Index (WPI) based inflation moderated to 11.2% YoY in Jul’21 as against 12.1% YoY in Jun’21 and a deflation of 0.2% YoY in Jul’20, on account of lower inflation in food (both primary and manufactured) and ‘fuel and power’ during Jul’21. The number is marginally lower than our expectation as well as Bloomberg consensus of 11.3%.

* WPI inflation in ‘primary articles’ (WPI weightage: 22.6%) stood at a five-month low of 5.8% YoY in Jul’21 v/s 7.7% YoY in Jun’21 on account of no inflation (nil YoY) in primary food articles. Other primary items such as ‘non-food articles’ and ‘crude petroleum and natural gas’, accounting for 6.5% weightage in the WPI basket, stood higher in Jul’21. WPI inflation in ‘fuel and power’ (WPI weightage: 13.2%) came in lower at 26% YoY in Jul’21 as against 32.9% YoY in Jun’21 and 36.7% YoY in May’21 on lower inflation in ‘mineral oils’ and deflation (eighth time in the past 12 months) in ‘electricity’.

* On the contrary, WPI inflation in ‘manufactured products’ (WPI weightage: 64.2%) came in higher at 11.2% YoY in Jul’21 as against 10.9% YoY in Jun’21 and 0.6% YoY in Jul’20. Inflation in manufactured food products remained largely stable at 13.1% YoY in Jul’21 from 13.4% YoY in Jun’21, but non-food manufactured products (core WPI) inflation rose to more than a 25-year high of 10.8% YoY in Jul’21 (v/s 10.4% YoY each in the preceding two months).

* WPI food inflation stood at a five-month low of 4.4% YoY in Jul’21 as against 6.6% YoY in Jun’21.

* Additionally, WPI inflation rose 60bp on a monthly basis in Jul’21, similar to Jun’21, due to lower MoM change in ‘primary articles’ and ‘fuel and power’, while sequential inflation in ‘manufactured products’ rose in Jul’21. While ‘primary articles’ grew 1% MoM in Jul’21 (v/s 1.1% MoM in Jun’21), ‘fuel and power’ grew 0.5% MoM in Jul’21 (v/s 3.5% MoM in Jun’21). The MoM change in ‘manufactured products’ grew to 40bp in Jul’21 (v/s no monthly rise in Jun’21). This indicates that the upward price pressure in almost two-thirds of the WPI index persisted in Jul’21, and majorly in nonfood manufactured products.

* The lower-than-expected inflation in both WPI and CPI in Jul’21 is welcomed but it is unlikely to affect RBI's monetary policy. We expect CPI-based inflation to average ~5.5% YoY in FY22, moderately lower than 5.7% YoY forecasted by RBI.

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