India’s Wholesale Prices Accelerate to 15-Month High of 2.61% in May

India’s wholesale inflation, measured by the wholesale price index (WPI), surged to a 15-month high of 2.61% in May from 1.26% in April, driven by an adverse base effect and a sharp increase in food prices. The inflation rate for food items reached 9.82%, contrasting with -3.61% in May 2023.

Food Price Surge

The significant rise in food prices was led by vegetables (32.42%), pulses (21.95%), cereals (9.01%), fruits (5.81%), and wheat (6%). Despite deceleration in prices of potatoes (64.05%), onions (58.05%), and paddy (11.79%), they remained elevated. Protein-rich items like eggs & meat (0.68%) and milk (3.61%) provided slight relief.

Impact of Monsoon

Aditi Nayar, Chief Economist at ICRA Ratings, highlighted the uneven progress of the southwest monsoon, with excess rainfall in southern regions and deficient rainfall in northwest, east, and northeast India, affecting kharif sowing and reservoir levels. This uneven rainfall distribution is crucial for controlling food inflation.

Manufactured Products

The manufactured products, which constitute 64.2% of the index, returned to inflationary territory at 0.78% in May after 14 months. This was driven by increased prices in manufactured food products (2.71%), beverages (2.14%), wood products (2.97%), leather (0.32%), and pharmaceuticals (1.19%).

Fuel and Power

Fuel and power prices slightly decelerated to 1.35%, with high-speed diesel prices contracting (-1.06%). However, prices of cooking gas (2.48%) and petrol (0.51%) increased. Madan Sabnavis, Chief Economist at Bank of Baroda, noted a marginal moderation in fuel inflation despite higher global oil prices, with global metal prices rising due to supply-demand mismatches.

Retail vs. Wholesale Inflation

This rise in wholesale inflation follows a surprising decline in retail inflation to a 12-month low of 4.75% in May. Although the Reserve Bank of India (RBI) primarily tracks retail inflation for monetary policy, the anticipated rise in WPI could maintain elevated retail inflation levels.

Key Points on India’s Wholesale Price Index (WPI)

The Ministry of Commerce and Industry releases the Wholesale Price Index (WPI) data.

Inflation Rate: WPI surged to 2.61% in May 2024, a significant increase from 1.26% in April, driven by higher food prices.

Food Inflation: Food prices rose sharply by 9.82%, led by increases in vegetables (32.42%), pulses (21.95%), and cereals (9.01%).

Manufactured Products: After 14 months, manufactured products returned to inflationary territory with a 0.78% increase, influenced by higher prices in food products and pharmaceuticals.

Fuel and Power: Fuel inflation moderated slightly to 1.35%, with high-speed diesel prices contracting (-1.06%), despite global oil price increases.

Economic Impact: Uneven monsoon rainfall affected kharif sowing and reservoir levels, influencing food inflation dynamics.