for the industry as it indicates loss of pricing power,” said Madan Sabnavis, chief economist at CARE Ratings.
Deflation (fall in prices) in manufactured goods looks possible now given the continuous decline from 4.6 per cent in October, 2018 to 0.3 per cent in July 2019, Sabnavis said.
In fact, inflation rate in food items remained elevated even as it inched down to 6.15 per cent in July from 6.98 per cent in the previous month.
However, widely tracked vegetables in this season saw the inflation rate coming down to 10.67 per cent from 24.76 per cent.
Fuel and power continued to witness deflation with the rate of price fall rising to 3.64 per cent from 2.2 per cent. Petrol, diesel and liquefied petroleum gas saw a fall in prices.
Aditi Nayar, principal economist at ICRA, said although a thaw in trade tensions has led to a rally in crude oil prices in the recent sessions, the subdued global growth outlook and the risks related to the resurgence of trade wars are
likely to outweigh geopolitical concerns, preventing a sharp resurgence in prices.
Taking primary articles (those found in raw form), fuel and light and processed food items, the inflation rate in the remaining items, technically called core inflation, fell to a 33 month low 0.2 per cent in July 2019. Nayar attributed this to weak commodity prices, a mild appreciation of the rupee as well as a lack of pricing power.
This is in contrast with core CPI inflation rate, which saw an uptick to 4.4 per cent in July against 4.3 per cent in the previous month. Nayar said the contrast was due to different composition of these two indices. Around half of the core-CPI is made up of services, the demand for which is likely to be sticky in a downturn and prices relatively inelastic to changes in commodity prices.
“Therefore, we expect the divergence between the core-WPI
and core-CPI inflation to persist in the coming months,” she said.
Nayar said the WPI inflation
rate was expected to remain muted in the near term, reflecting the continued softness in commodity prices, although a weaker currency may arrest the correction in the landed price of imports.
However, available trends suggest that the fall in wholesale food inflation rate in July may prove to be temporary, she said.
Sabnavis said seasonal factors are likely to exert upward pressure on food prices.
“The progress of monsoon and the flood situation in several states pose a risk to inflation of primary goods,” he said. He said going forward, WPI inflation
rate was largely expected to remain subdued and rule lower than the CPI.