Oil-price volatility, higher insurance and freight costs, and strengthening El Nino effects during August-September are likely to keep pressure on imported commodities, food prices and headline wholesale price inflation (WPI), according to economists.
Sonal Badhan, Economist at Bank of Baroda, said that as hopes of a peace deal between the US and Iran diminish and two key waterways — the Strait of Hormuz and Bab al-Mandeb Strait — remain under threat, volatility in oil prices can be expected.
"Higher cost of insurance will add to the total freight cost, which in turn will pose upside pressures on imported commodities. Also, the effect of El Nino is expected to get stronger in August-September period. This will also maintain pressure on food inflation and headline WPI," Badhan said.
Headline WPI stood at 9.8 per cent in July. At the same time, output PPI indicated that the headline index rose 9.6 per cent, compared with a decline of 0.5 per cent last year.
In the latest WPI series, all major groups — food, fuel and manufactured products — contributed to the elevated inflation print.
Food inflation remained a major driver, with fruits, milk, eggs and meat products showing upward price pressures.
Within fuel inflation, the mineral oil index remained elevated, with crude petroleum, natural gas, aviation turbine fuel (ATF), LPG and lubricating oils recording notable increases, the economist said.
Similar trends were observed in output PPI as well. In contrast, input PPI showed month-on-month upward pressure in only 10 of the 21 manufactured product indices, including basic metals, machinery, beverages, furniture and other non-metallic mineral products.
Fuel and power inflation rose 20 per cent year-on-year in July, although it moderated from 27.4 per cent in June. Mineral oil inflation rose 32.4 per cent, while crude petroleum and natural gas increased 27 per cent.
Global crude prices were around 21 per cent higher year-on-year in July and had risen 26.5 per cent year-on-year till August, with geopolitical tensions and risks around key shipping routes adding to volatility.
