WPI Inflation - Seventh Straight Month of Contraction:: Edelweiss

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WPI inflation for May came in at -2.4% YoY versus -2.7% in April, marking seventh straight month of negative print. Agri-inflation continued to decline despite adverse weather conditions, corroborated by CPI data as well. Meanwhile, demand inflation (proxy for core inflation) has continued to hover around zero for the past 3 months, reflecting weak demand in the economy.

In the near term, progress of monsoon and government’s response to it in terms of food stock management will be vital to determine the food inflation trajectory. We maintain that even if prices of a few agri-commodities rise in response to weak rainfall, it will be a transient phenomenon.