JUNE EXPORTS RISE FOR 10TH STRAIGHT MONTH

Falling food prices reduced it to 0.9%, down from 2.17% in May; manufacturing price inflation also at 11-month low

Export growth slowed in June to 4.39 percent against 8 percent in the previous month even as the country managed to see 10 straight months of rise in out bound trade. The figure was $23.56 billion in June compared to $22.57 bn in the same month last year, according to data issued by the commerce and industry ministry. Growth has been down since March, when it hit a high of 27 per cent, the steepest in a little over five years.

Inflation based on the Wholesale Price Index (WPI) slipped to a 11-month low of 0.9 per cent in June, as food inflation remained negative and prices of manufactured items rose at their weakest pace in 11 months.

The slowing in wholesale inflation comes against the backdrop of retail inflation easing to a record low of 1.54 per cent in June. As a result, expectations from the Reserve Bank of India to reduce its lending rate (repo) at its next Monetary Policy Committee meeting in early August, has again peaked from economists and business alike.

The WPI has been on a downward trend since February and had stood at a five-month low of 2.17 per cent in May. Official data released on Friday showed that in June it was forced even further down, by continued deflationary pressure in the food segment which had begun in May.

Subsequently, prices of potatoes, other vegetables and pulses saw steeper drops in June. Potato prices fell a massive 47 per cent; pulses and other vegetables saw prices falling by 25 per cent and 21 per cent, respectively.

These drops can be tied to the growing farmer agitations across large parts of Madhya Pradesh and Rajasthan, where growers have complained of incomes crashing due to the fall in price of their crops.

Onion prices fell at a slower clip of nine per cent, after a 12 per cent fall in May.

“WPI inflation is likely to rise modestly over the coming months and print between 1.5 and 2.5 per cent, unless commodity prices record an unexpected rally or the rupee displays a sharp depreciation. Average WPI inflation is likely to increase mildly to 2 per cent in FY18, from 1.7 per cent in FY17,” said Aditi Nayar, prinicpal economist at ratings agency ICRA.

The manufactures segment, with nearly 65 per cent weightage in the index, saw prices rising by 2.27 per cent in June as compared to 2.55 per cent in May, the slowest in 11 months. Among the two largest subindices, manufacturing of food products continued to slow, while that for basic metals saw the rate picking up at 7.92 per cent. Fuel inflation fell for a fifth straight month, rising 5.28 per cent, down from a 11.69 per cent rise in May. As a result, industry bodies have called for a reduction in the repo rate by at least 50 basis points.

“Reducing the policy rate might not improve investment demand. It might boost some demand for the consumer durables sector, which is posting negative growth after demonetisation,” said Devendra Pant, chief economist, India Ratings & Research.

The June figures for WPI represent the second instance that wholesale inflation is being calculated according to the new series with an updated base year of 2011-12. The new WPI series adopts a more recent base year and is now aligned with the revised gross domestic product (GDP) and index of industrial production (IIP) series.