July WPI at 11.16%: Care Ratings says food inflation trajectory depends on Kharif crop, core CPI to increase

The core WPI has come largely in line with expectations. CNBC-TV18 poll had said it would come around 11 percent and it came in around 10.8 percent -- marginal hardening, which is taking place on a month and month basis.

Meanwhile, the wholesale price-based inflation softened for the second straight month to 11.16 percent in July on cheaper food items, even though prices of manufactured goods and crude oil-hardened. However, WPI inflation remained double-digit for the third consecutive month in July, mainly due to a low base of last year. WPI inflation was (-) 0.25 percent, in July 2020.

Madan Sabnavis, Chief Economist, Care Ratings said that the numbers are very much on expected lines.“In terms of food inflation, we have seen prices of food commodities softening in the last couple of months, that is June as well as July, and something which will probably carry on even in the month of August and September until the Kharif crop comes in. Then subsequently, it all depends upon how Kharif crop plays out in terms of its effect on food inflation,” Sabnavis said in an interview with CNBC-TV18.

Furthermore, he said, “As far as international manufactured goods, as well as fuel products, are concerned, I think that's something which will remain sticky in the upward direction. In terms of fuel, it is quite clear that the government is not willing to reduce the taxes. And even though we have seen international prices of crude oil moving in the downward direction, there is no respite as far as we're concerned, as consumers both at the wholesale as well as the retail level.

”According to him, the inflation numbers for WPI, given the fact that we had a negative base effect last year, are expected to be double-digit."Maybe from the point of view of policy, not very relevant --, people look at the CPI inflation but from the point of view of the industry, the fact that prices of manufactured products are going up, is reflective of regaining of some kind of pricing power, something which we've also seen in terms of the corporate results in the first quarter, which would probably get stretched even in the second quarter," he further explained.

“If we were looking at least from the CPI point of view, as the economy opens up, we have seen that prices of services. And the important thing is that even when things normalise these prices barely come down. I think this is the MRP effect. Once the maximum retail price goes up, it is very unlikely that even in case the costs which lead to this increase in MRP, come down, rarely does the MRP come down,” he said.