By Manoj Kumar
NEW DELHI (Reuters) - India's annual wholesale price inflation in July eased to a 25-month low of 1.08%, indicating manufacturers are losing their power to raise prices as an economic slowdown deepens.
Manufacturing inflation, which contributes around 64% to the wholesale price index, rose just 0.34% in July from a year earlier, compared with 0.94 percent in June and 4.53% in July 2018.
As a result, headline WPI inflation weakened more than expected from 2.02% in June. Analysts had expected it to dip to 1.93%.
The vehicle industry - which represents 60 percent of the country's manufacturing output once components-makers are included - is in a deep crisis.
Domestic passenger vehicle sales in July dived at the steepest pace in nearly two decades, an auto industry body said on Tuesday, as a financing crunch helped to choke demand.
The weak wholesale inflation data reinforced views that the Reserve Bank of India (RBI) will cut interest rates for a fifth straight time at its next policy meeting in October in a bid to stimulate consumption.
However, while acknowledging another easing is likely, Capital Economics believes underlying inflation will rise before long, highlighting the risks of aggressive monetary loosening.
Food prices could go up in coming months, while core consumer inflation has started to rise again, the consultancy said in a note to clients.
Wholesale food prices in July rose 4.54% year-on-year, compared with a 5.04% jump a month earlier, the data showed, while wholesale prices of fuel products, including petrol, diesel and cooking gas, fell. That could help the economy as India meets nearly 80% of its oil demand through imports.
India's retail inflation, the main gauge used by the central bank to monitor prices and decide on whether to change its benchmark repo rate, eased in July to 3.15%, data showed on Tuesday, remaining below the central bank's 4% medium-term target for a 12th straight month.
Some manufacturing sectors such as leather goods, garments, finished steel, plastic material and edible oil recorded price falls ranging from 0.09% to 6.57% in July from a year ago, indicating weak demand is likely to be hitting corporate profit margins.
India's economic growth slowed to a five-year low of 5.8% in the January-March quarter as a result of sluggish domestic and global demand and little growth in private investment.
(Reporting by Manoj Kumar; Editing by Martin Howell & Kim Coghill)