WPI inflation in May accelerates to 15.88% on higher food prices

India’s wholesale price index (WPI)-based inflation rate shot up to a record high of 15.88 per cent in May in the current 2011-12 series. This comes as food prices accelerated while commodity rates hardened further.

With this, WPI-based inflation has been in double-digits for 14 consecutive months.
 

What makes this worrisome is that the increase was reported despite a high base of 13.11 per cent inflation during the same month last year.

The latest figure also makes it historically the highest in 31 years since September 1991 (16.31 per cent).

Data released by the industry department on Tuesday showed vegetable inflation in May galloped to 56.4 per cent, leading to a food inflation of 12.34 per cent. This comes even as the rise in wheat prices softened.

Though down marginally from the previous month, edible oil inflation in May — at 11.41 per cent — remained in double digits for the 30th consecutive month.

Core inflation, which excludes food and fuel inflation, remained elevated at 10.4 per cent in May. It eased marginally from 11.1 per cent in April due to moderation in basic metal prices.

Fuel inflation rose to 40.62 per cent due to rising crude oil prices but inflation for manufactured items eased marginally to 10.11 per cent in May.

Aditi Nayar, chief economist at ICRA, said given the weight of oil and fuel items of around 10.4 per cent in the WPI basket, the rise in global crude oil prices is expected to put upward pressure on the headline WPI print for June.

“Further, the weakening of the rupee against the dollar is likely to augment the landed cost of imports in the month, posing upside risks to the headline number. Consequently, we expect the WPI inflation to remain elevated around 15-16 per cent in June,” she added.

Economists also expect the high WPI inflation to put upward pressure on CPI inflation.

Data released on Monday by the National Statistical Office showed that consumer price index (CPI)-based inflation eased to 7.04 per cent in May from 7.79 per cent in April.

Gaura Sen Gupta, India economist at IDFC First Bank, said since there is a strong correlation between core WPI and core CPI inflation at 80 per cent, CPI inflation is likely to stay firm. This is because producers continue to pass on input cost pressures.

“Indeed, WPI details indicate rising margin pressures on producers with industrial input cost rising by 30 per cent in May. The improvement in capacity utilisation levels will also support further pass-through of input cost pressures. Considerable uncertainty persists on the inflation outlook with global crude oil prices remaining high amid OMC under-recoveries. This combination could result in retail petrol and diesel prices rising once again. Another source of risk is food inflation, as our CPI forecast assumes normal monsoon,” she added.

Last week, the six-member Monetary Policy Committee (MPC) unanimously voted to increase the benchmark policy rate by 50 basis points, taking the repo rate to 4.9 per cent.

While the real GDP growth forecast for FY23 has been retained at 7.2 per cent, the inflation projection for the year has been raised to 6.7 per cent.

The MPC noted that inflation was likely to remain above the upper tolerance threshold of 6 per cent through the first three quarters of FY23.