India’s wholesale price inflation shot up to a record 12.94% in May, up from 10.5% in April, driven largely by a sharp spike in fuel and power inflation, which rose to 37.6%, and the low base effect from May 2020.
Fuel and power inflation nearly quadrupled to 37.6% from the 9.75% recorded in March this year, and is significantly higher than the 20.94% mark attained in April. Manufactured products’ inflation rose to 10.83% from 9% in April.
While the wholesale food prices inflation climbed marginally from 7.58% in April to 8.11% in May, on a sequential basis, the food price index cooled off from April significantly.
ICRA chief economist Aditi Nayar said the large month-on-month correction in food prices was driven by perishables such as fruits and vegetables, suggesting that demand curtailment is outstripping supply disruptions amid the widening state level restrictions imposed in May.
Inflation in wholesale prices for the month of March was also revised upwards from 7.39% to 7.89%, by the Economic Adviser’s office in the Department for Promotion of Industry and Internal Trade, which released the provisional wholesale price index (WPI) estimates on Monday.
The ‘high rate of inflation is primarily due to low base effect and rise in prices of crude petroleum, mineral oils, and manufactured products’, it said in a statement. “The month over month change in WPI index for the month of May 2021 (as compared to April 2021) was 0.76%.”
The WPI had contracted 3.37% in May 2020. Primary food articles were the only category to see some moderation in the month, with inflation cooling down from 10.2% in April to 9.6%.
The series-high wholesale inflation print for May also coincided with a peak in core wholesale inflation, which relies on prices of manufactured non-food products, which could last for a few more months, said economists. However, the transmission of the high wholesale inflation into retail prices may be limited due to subdued demand.
“The core-WPI inflation hardened sharply to a series-high 10.0% in May 2021, with a broad-based uptrend across most of the sub-sectors. The core-WPI inflation is expected to climb further to a new series-high 10.4-10.9% in June, and sustain in double-digits until September 2021,” said Ms Nayar.
“Nevertheless, we foresee a limited transmission of the same to the CPI inflation, as cautious demand will keep pricing power in check in the immediate term,” she said, adding that the continued rise in global crude oil prices, a weaker rupee and the upward revision in domestic fuel prices remain ‘risk factors’.