InvestorQ : What does negative WPI inflation mean for markets?
Lavanya Subramanian made post

What does negative WPI inflation mean for markets?

ishika Banerjee answered.
1 year ago

For the third month in succession, Wholesale Price Index or WPI Inflation came in the negative zone. This was exactly a day after CPI inflation came in higher than March at 6.09%. WPI inflation, representing producer or manufacturing inflation, came in at -1.81% for the month of June 2020, hinting that producer prices were still under pressure.

This is significant because this is the third consecutive month of WPI contraction after touching a 54 month low of (-3.21%) in May 2020. The contraction in WPI inflation was despite a spike in some of the key food items. However, it must be remembered that food has a much lower weightage of just 25% in WPI as compared to CPI.

The predominant weight in the WPI inflation basket is manufactured products, which account for 75% of the basket. That basket is going through severe deflation. Fuel deflated by 13.6% in June. Will this impact RBI rate action? Economists opine that Inflation may not matter for RBI rate trajectory as the ideas it keep rates dovish till growth picks up.