China's was much lower at 1 per cent.

But the real problem is the spiralling wholesale inflation. 

The two sets of inflation figures the Wholesale Price Index (WPI) and the Consumer Price Index (CPI) released recently by the government for June are grossly misaligned. 

While the WPI, which is a reflection of prices in the wholesale market or at the factory gate, neared the double-digit mark at 9.87 per cent in June, the retail inflation based on movement in the CPI showed an increase of 4.38 per cent, up from 3.93 per cent in the preceding month. It may not be long before the elevated wholesale inflation spills over and starts firming up prices in the retail market, requiring both the government and the Reserve Bank to step up measures to check price rise.

Focus Now On WPI

The WPI in June rose to 9.87 per cent, only a tad away from the double-digit mark. It rose from 9.68 per cent in May, driven mainly by increasing prices of fuel and power, manufactured products and primary articles. The food index climbed to 6.14 per cent, up from 4.49 per cent in May.

The WPI inflation was low or in the negative till December 2025. The index started climbing up in January 2026 and rose quickly after April, mainly on account of the impact of the West Asia conflict and subsequent closure of the Strait of Hormuz. The depreciating rupee added to the cost of imports and inputs. It was a double whammy for the industry.

Given the current trend in the WPI, it is likely to cross the double-digit mark in the coming months.

Consumer Price Index

The CPI at 4.38% in June is still within the tolerance band of the Reserve Bank, which is mandated to keep retail inflation at 4 per cent with a 2 per cent margin on either side. The food inflation worked out to be 5.32 per cent, up from 4.78 per cent in May. The retail inflation in personal care, social protection and miscellaneous items was as high as 16.72 per cent in May.

The highest CPI inflation at 6.36 per cent was witnessed in Telangana, followed by Andhra Pradesh (5.39 per cent), Tamil Nadu (5.24 per cent), Odisha (5.15 per cent) and Madhya Pradesh (5.09 per cent). On the other hand, it was below the national average in north-eastern states and Delhi.

Reserve Bank Monetary Policy

The RBI, in its last bi-monthly monetary policy in June, kept the short-term lending rate or the repo rate unchanged at 5.25 per cent on inflation concerns and geopolitical uncertainties. However, it lowered the GDP forecast for the current fiscal from 6.9 per cent to 6.6 per cent, as projected earlier.  On retail inflation, the central bank raised the inflation projection to 5.1 per cent from 4.6 per cent.

Reserve Bank Governor Sanjay Malhotra, while announcing the bi-monthly monetary policy in June had said, "going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity. While import diversification in affected commodities is likely to improve supply, it would come at a higher cost.

"The full impact, however, will depend on the duration of the conflict, time taken for normalisation of supply chains and the burden-sharing approach among the stakeholders. The pass-through of higher energy prices to retail products is already evident. Additionally, the projected deficiency in the south-west monsoon will have implications for agricultural production and rural demand."

The next bi-monthly monetary policy is due on August 5. Although the Reserve Bank takes into account retail inflation while firming up the bi-monthly monetary policy, it will not be able to ignore the firming WPI numbers, which are nothing but alarming.

Inflation not limited to food

The WPI data indicates that the India inflation narrative is no longer predominantly food. Rather, inflationary pressures have been narrowing in the manufacturing and energy-related areas. It indicates sustained increases in petroleum products, chemicals, fabricated metals, electrical equipment, rubber and plastics, transport equipment and other manufactured products. These sectors are the core of the industrial supply chain, and provide raw materials to various consumer-based industries.

At the producer level, the prices of petroleum products, chemicals and manufactured goods and transport-related items continued to soar. These increases are yet to be fully felt by consumers, but are hitting companies with rising input costs across industry sectors.

When the price of crude oil increases, the price of refined petroleum products also increases. Expensive fuels lead to higher freight costs. Increased cost of packaging due to chemical price increases. Car and appliance manufacturers have to pay more for metals. All stages of production are more expensive until the product reaches a retailer.

From Factory Floors to Household Budgets

While food inflation influences consumers almost instantly, wholesale inflation passes through the economy in stages. In most cases, manufacturers are the first to feel the impact.

In order to prevent the loss of market share, companies usually delay the price increase, while accepting a lower profit margin, cutting promotion incentives, or decreasing product sizes without a price increase. This approach does have its drawbacks.

The six-month movement of the WPI data indicates that these inflationary pressures are increasing in persistence, not temporary. Several categories related to manufacturing have had relatively high levels of inflation in recent months, suggesting that producers have been experiencing increases in input costs for a longer period than a single month.

These increases are likely to be sustained over time, increasing the risk of businesses making some upward adjustments to prices.

The industries that are especially sensitive are fast-moving consumer goods (FMCG), industrial goods, consumer durables, and construction materials, as fuel, transport, and energy constitute a major proportion of the production cost. These sectors may be able to either increase prices or make product sizes smaller or decrease discounts to maintain profitability if wholesale inflation continues.

Although there is no automatic or immediate link between wholesale inflation and retail inflation, when the costs of inputs go up, manufacturers increase prices.  The ultimate burden falls on consumers. This transmission will vary according to demand conditions, both competition and the ability of companies to absorb the cost.

Warning signs

Rising inflation is always a cause for concern but for India, which was banking on consumption led growth this will be particularly worrisome. Clearly when you are left with lesser money in your pocket, your spends will reduce. With sub normal rains, rural incomes have also been going down.

This could directly hit sectors such as FMCG, automobiles -- as tractors and two wheeler sales may slow down, food and beverage among others.     

Rising inflationary expectations may also drive up the cost of government borrowing in the bond market as it factors in the prospect of tighter policy. Rising uncertainty in the business climate might make it harder for firms to make investment choices, and rising prices of basic products might affect the purchasing power of rural households or the middle class.

If wholesale prices continue to rise across manufacturing and fuel, the pressure building inside factories today could soon begin appearing on supermarket shelves, household budgets and, ultimately, the RBI's inflation dashboard. The June data, therefore, is not just a snapshot of where inflation stands today it is an indication of where India's inflation battle may be headed next.