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India’s Wholesale Inflation In May Highest Since August 1991, Comes At 15.88%

Wholesale Inflation (WPI)

Data released by the Commerce Ministry on Wednesday showed India’s inflation based on Wholesale Price Index (WPI) touched a new high of 15.88 percent, 0.80 percent up from 15.08 percent recorded in April 2022. During the same quarter last year, the WPI inflation was 13.11 percent.

For 14 months now WPI inflation has stayed in the double-digit territory.

“The high rate of inflation in May 2022 is primarily due to rise in prices of mineral oils, crude petroleum and natural gas, food articles, basic metals, non-food articles, chemicals, and chemical products and food products, etc. as compared to the corresponding month of the previous year,” the commerce and industry ministry said in a statement.

Following the old series, the last time WPI inflation notched higher than 15.88 was in August 1991. At that time, it was 16.06 percent.
After a four-month hiatus, food inflation reached double digits, with price increases in vegetables, potatoes, wheat, and protein-rich foods. On the other hand, inflation in the onion industry slowed to (-) 20.40 percent.

In May, food inflation was 12.34 percent, compared to 8.35 percent the previous month. The last time it hit double digits was in January when it hit 10.40 percent.

The rate of price rise in vegetables stood at 56.36 percent, potato at 24.83 percent, wheat at 10.55 percent, and egg, meat, and fish at 7.78 percent.

In the fuel and power basket, inflation remained at 40.62 percent, while in manufactured products and oil seeds, it came in at 10.11 percent and 7.08 percent, respectively.

The rise in crude petroleum and natural gas was 79.50 percent in May.

Retail inflation in May lowered to 7.04 percent, from 7.8 percent in April, but remained above the Reserve Bank’s inflation target.
To curb inflation, the RBI raised its key interest rate by 40 basis points in May and 50 basis points in June.

The central bank, last week, also did an upside revision of inflation by 100 basis points to 6.7 percent for 2022-23.

Icra Chief Economist Aditi Nayar said an increase in inflation in the primary food articles — particularly vegetables and eggs, meat, and fish — is due to the extreme weather conditions and rising input costs, such as fodder prices that propelled the inflation print.

Also, the increase in prices of minerals, crude petroleum, natural gas, and fuel and power segments is a result of the rise in global commodity and crude oil prices, Nayar added.

“Given the weight of oil and fuel items in the WPI basket, the rise in global crude oil prices is expected to put upward pressure on the headline WPI print for June 2022. Further, the weakening of the Rupee against the US 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 at 15-16 percent in June 2022,” Nayar said.

The rise in the WPI inflation, opposite to lenience in retail inflation in May 2022, may inculcate some caution into the outlook for monetary policy actions.
“We continue to expect 60 basis points of repo hikes over the next two policy reviews,” Nayar added.

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