Even before the effect of deficient monsoons begins to kick in, wholesale price inflation hit a five-month high of 6.01 per cent in May with the rate of rise of food prices running at 9.5 per cent. The bad news came after Prime Minister Narendra Modi warned in Goa on Saturday: “To improve the economic health of India, pull the country out of the current mess shouldn’t we take some bitter decisions?”
In April, the rate of growth of the Wholesale Price Index (WPI) was 5.2 per cent; food price inflation had risen at the rate of 8.6 per cent. The pick-up in food inflation was led primarily by higher poultry and milk prices, according to the official data released here on Monday. Wholesale prices of potato are up more than 40 per cent since March. The build up in wholesale inflation in vegetables since March is touching 18 per cent.
Fuel inflation climbed to 10.5 per cent in May largely on the back of the Rs.1.3 a litre hike in diesel prices and the lagged revision in the electricity index. In April, the fuel price rate of inflation was 8.9 per cent.
The wholesale price data dampened the feel-good that the easing of retail price inflation in May to 8.3 per cent from 8.6 per cent in the previous month had generated. The official release also said that the rate of WPI rise for March has been revised up to 6 per cent from 5.7 per cent.
“In the near-term, the upside risks to inflation not only come from monsoons, but also from recent spike in crude on tensions in Iraq,” said Citigroup India’s chief economist Rohini Malkani in a report on the latest inflation data. The report, however, also pointed out that the statistical base effect will turn favourable June onwards.
Confederation of Indian Industry (CII) Director-General Chandrajit Banerjee said in a statement that the spike in WPI inflation in May was a cause for concern. “Containing the spiral of rising price pressures is of utmost importance to revive industrial production, especially as persistent inflation has caused the interest rate to follow a tight trajectory and has added to the cost of capital for industry,” he said pointing out the adverse impact of inflation on economic growth.
FICCI President Sidharth Birla echoed the caution: “Inflation remains a key impeding factor to the overall growth prospects of the economy… With food and fuel prices being the key driving factors the upside risks to inflation continues.”
“The sub-par monsoon outlook for this year could put pressure on food prices going ahead.”
The CII recommended a multi-pronged approach for tackling inflation, including the implementation of a model APMC Act.