Despite rise in prices of food articles the inflation rate has fallen mainly due to declining prices of manufactured products.

The WPI-based inflation fell to 4.7 per cent in May, driven mainly by declining prices of manufactured items, even as prices of food articles inched up.

Inflation based on the Wholesale Price Index stood at 4.89 per cent in April. In May 2012, it was 7.55 per cent.

As per official data released on Friday, WPI inflation in the manufactured items category declined to 3.11 per cent in May from 3.41 per cent in April.

The non-food articles category, which includes fibre, oil seeds and minerals, saw sharp decline in inflation to 4.88 per cent, from 7.59 per cent in April.

Food products

However, inflation in food articles, which has a 14.34 per cent share in the WPI basket, rose to 8.25 per cent in May. Inflation in this category was at 6.08 per cent in April.

The rise in food inflation was on account of increase in prices of onions, vegetables, cereals and protein-based items.

Inflation in vegetables stood at 4.85 per cent in May, against (—)9.05 per cent in the previous month.

The rate of price rise in onion was high at 97.40 per cent for the month, as against inflation rate of 91.69 per cent in April.

Inflation for March was revised downwards to 5.65 per cent from 5.96 per cent as per provisional estimates.

The data showed inflation in egg, meat and fish stood at 11.21 per cent during the month as compared to 10.44 per cent in April. Inflation in wheat, however, eased to 12.65 per cent in May, as against 13.89 per cent in the previous month. Potatoes too saw decline to (—)3.44 per cent, from (—)2.42 per cent in April. Pulses prices declined sharply to 5.95 per cent during the month. Inflation rate in rice and cereals went up to 18.48 per cent and 16.01 per cent respectively in May.

Under the fuel and power category, it was lower at 7.32 per cent in May as compared to 8.84 per cent in April.

Data released earlier this week showed retail inflation falling to a 15—month low of 9.31 per cent in May, indicating that inflationary expectation is on declining trend.

However, food articles inflation was higher even in CPI data.

Monetary policy

The inflation data would be closely watched by the Reserve Bank while formulating its mid-quarter policy which is scheduled on Monday.

There have been demands for a lower interest rate in the backdrop of declining inflation. Finance Ministry sources, commenting on inflation numbers, said they would want lower interest rates and monetary policy transmission.

While the Reserve Bank has lowered interest rates by 1.30 per cent since January 2012, the banks have cut lending rates by only 0.30 per cent.