Wholesale Inflation Rises to 15-Month High in May
India's wholesale inflation has surged to a 15-month high of 2.61% in May, driven by rising prices of food and primary articles. This data, released by the commerce ministry on Friday, marks a significant increase from previous months and exceeds economists' expectations.
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Trend Analysis of Wholesale Price Index (WPI)
The Wholesale Price Index (WPI), a key indicator of producer prices, has shown a steady increase over recent months. In March, the WPI rose to 0.53%, followed by 1.26% in April. Earlier in the year, WPI figures were relatively modest at 0.33% in January and 0.20% in February.
Comparatively, December recorded a WPI of 0.86%, and November had a figure of 0.39%. This rise to 2.61% in May surpassed the forecasted 2.5% increase, as projected by a Reuters poll, and represents a sharp contrast from May of the previous year, when WPI stood at -3.61%.
Food Inflation
Food inflation has significantly contributed to the surge in WPI, which climbed to 9.82% in May from 7.74% in April to 6.88% in March. This increase is primarily attributed to higher cereals, wheat, pulses, vegetables, and fruits prices. Conversely, prices of onions, eggs, meat, fish, and milk saw a decline compared to April.
Non-Food Articles and Fuel Prices
Non-food articles experienced a price decline of 3.99% in May, a slight improvement from the 4.41% decline in April. Meanwhile, fuel and power prices increased by 1.35%, maintaining a trend close to the 1.39% rise seen in the previous month. Crude petroleum and natural gas prices saw a substantial acceleration, increasing by 9.8% from 4.97% in April.
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Manufactured Products
Manufactured product prices rose by 0.78% in May, a recovery from a 0.42% decline in April and a significant improvement from the 3.03% decline observed in the same period last year.
Impact on Retail Inflation and RBI Policy
Interestingly, retail inflation, measured by the consumer price index (CPI), fell to 4.75% in May from 4.83% in April, marking the lowest level in a year. This moderation was due to slower price increases for food items such as meat, fish, milk products, vegetables, and spices.Earlier in June, the Reserve Bank of India (RBI) maintained the policy repo rate at 6.5%, indicating that interest rate cuts might be delayed.
Future Outlook
Icra Ltd, a rating agency, noted that global commodity prices, including those for the Indian basket of crude oil, have retreated on a month-on-month basis in June 2024 so far. This trend is expected to help contain the year-on-year WPI inflation increase in June, countering the adverse base effect.
Icraanticipates the headline WPI inflation to inch up modestly to about 3.0% in June 2024, compared to -4.2% in June 2023.The data and expert analyses suggest that while wholesale inflation is on the rise, various factors, including global commodity price trends and RBI policies, will play a crucial role in shaping future inflation dynamics in India.
Also Read: Fitch Raises India’s Growth Forecast for FY25 to 7.2%