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Falling food prices slow down wholesale inflation to 5-month low in May

May WPI at 2.17 %, down from 3.85 % in May; fuel inflation continues to decline for 4th month

Subhayan Chakraborty  |  New Delhi 

Select vegetables' prices crash on farmers' rush for sale
Falling food prices have slowed down wholesale inflation to a five-month low. File photo

Inflation based on the wholesale price index (WPI) slipped to a five-month low of 2.17 per cent in May as turned negative and prices of manufactured items rose at their weakest pace in the past five months.

The May figures for the WPI represent the second instance that wholesale inflation is being calculated according to the new series with the updated base year of 2011-12, which was released last month.

Even as has been slowing down over the past couple of months - it stood at 3.85 per cent back in April - official data, released on Wednesday, showed that in May, it was forced even downwards by deflationary pressure in the crucial food segment. 

Subsequently, prices of important crops like potato, vegetable, pulses, and onions have seen steep drops. Potato prices fell by a massive 44 per cent while pulses and vegetables saw prices falling by more than 19 per cent and 18 per cent, respectively.

The steep drop in prices can be tied to the growing farmers' agitation movements across large parts of Madhya Pradesh and Rajasthan, where farmers have complained of incomes crashing due to the fall in prices of their crops. 

The adopts a more recent base year and is now aligned with the gross domestic product (GDP) and index of industrial production (IIP) — also revised — series. This allows for a more meaningful comparison of the parameter, including the GDP deflator measure. This base year revision also allows items (such as natural gas, petroleum coke) to be included, the production share of which have increased over time.

Apart from this, the series removes the excise duty component from prices, bringing the measure closer to the producer price index and, at the same time, making it less responsive to changes in tax rates. 

The manufactured segment, which commands nearly 65 per cent weightage in the index, saw prices rising by 2.55 per cent in May, the slowest in five months. 

Both of the two largest sub-indices within the segment - manufacturing of food products and basic metals - saw marginal inflation rates.

also continued to decline for the fourth straight month. It registered a rise of 11.69 per cent in May, down from the 18.16 per cent rise seen in April.

In the new WPI series, the number of items covered has increased from 676 to 697. In all, 199 new items have been added and 146 old items have been dropped.

Among the primary articles, new vegetables and fruit such as radish, carrot, cucumber, bitter gourd, mosambi (sweet lime), pomegranate, jackfruit, and pear have been added. In the mineral group, items like copper concentrate, lead concentrate and garnet have been added, whereas copper ore, gypsum, kaolin, dolomite, and magnesite have been taken out. Natural gas has been added as a new item.

Among manufacturing items, around 173 new items such as conveyor belt, rubber tread, steel cables, tissue paper, and wooden splint have been added, while 135 items like khandsari (unrefined raw white sugar), poppadom, and video CD players have been dropped.

The weight of manufactured items has decreased to 64.2 per cent in the WPI in the new series from 64.9 per cent in old series, and fuel and power to 13.1 per cent from 14.9 per cent, while those of primary items rose to 22.6 per cent from 20.1 per cent.

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