Wholesale inflation in India, measured using the Wholesale Price Index, quickened to a 15-month high of 2.61 per cent on an annual basis in the month of May as against 1.26 per cent in April 2023, government data showed on Friday.
WPI had decreased by 3.48 per cent in May 2023.
The number quickened considerably to 7.4 per cent in May from 5.5 per cent in April and 4.82 per cent in May 2023.
Primary articles inflation quickened to 7.2 per cent in May from 5.01 per cent in April.
Fuel and power inflation stayed muted at around 1.4 per cent in May.
Manufactured products’ inflation rate rose to 0.8 per cent in May after it contracted 0.4 per cent in April.
The positive rate of inflation in May, 2024 is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum & natural gas, mineral oils, other manufacturing etc, the press release said.
Food inflation, a headwind
Rate of inflation in the food articles index stood at 9.82 per cent in May, up from 1.63 per cent in the same month a year ago.
Food inflation remains a sore point for the policymakers as it waits for the “elephant to return to the forest,” as alluded to by the Reserve Bank of India Governor Shaktikanta Das in the latest MPC meeting.
“Headline inflation has eased from its December peak; nevertheless, the persistent pressure from food prices is impeding the ongoing disinflation process, presenting obstacles to achieving the target,” Das said.
Wholesale vegetable prices increased 32.42 per cent in May 2024, after it contracted 20.5 per cent in the same month a year ago. Pulses’ prices increased 22 per cent, higher than the 5.8 per cent figure seen a year ago.
Inflation in wholesale potato prices in May was 64 per cent after it contracted 18.1 per cent last year.
Inflation in wholesale onion prices accelerated to 58 per cent in May 2024, up from a contraction of 7.25 per cent in May last year.
A Reuters poll showed that WPI inflation for April was expected at 2.5 per cent. ICRA had also projected the WPI inflation reading to harden further to 2.0-3.0 per cent in May amid the widening of the unfavourable base for items like food and crude oil.
During the June MPC, RBI Governor Shaktikanta Das said the central bank remains vigilant to any upside risks to inflation, particularly from food inflation which could possibly derail the path of disinlfation.
The government also released India’s retail inflation data which showed that it eased to a 12-month low in May at 4.75 per cent on an annual basis as against 4.83 per cent in the previous month.
The Reserve Bank of India increased the repo rate by 250 basis points to 6.5 per cent since May 2022 but has held them at the mark for eight consecutive meetings in a bid to combat inflation. This monetary policy tool typically reduces demand in the economy, helping to lower inflation.
The latest RBI monetary policy meeting minutes highlight persistent uncertainties around inflation, particularly from fluctuating food prices, which could impact the inflation outlook. These rising food prices are disrupting India’s current efforts to reduce inflation and pose challenges to achieving the 4 per cent medium-term target.
“Higher food perishables were offset by disinflation in the fuel and broader non-food segments, helping to keep the headline print close to our forecast at 4.8% yoy, the softest print in nearly a year,” said Radhika Rao, Executive Director and Senior Economist, DBS Bank.
This print is likely to be of little consequence for the RBI MPC, which will prefer to take a forward-looking view, opting to see through near-term disinflation in 2QFY and base-effect driven pullback, Rao said.
“The focus will be on the lagged impact of weather-related forces on output, and by extension prices. Core inflation was benign, but is expected to bottom out around mid-year and trend gradually higher thereafter,” she added.
