WPI inflation inches up 0.79% in May

Food articles inflation may be the reason behind the rise in inflationary pressure, which came in at 7.88% in May versus 4.23% month-on-month

The wholesale price index (WPI) rose in May by 0.79 per cent, up from 0.34 per cent in April, when it showed the first monthly rise after 17 months of contraction.

The official data was issued on Tuesday and showed the latest push was primarily due to a rise in food inflation, up 7.88 per cent, compared to 4.23 per cent in April. Also, prices of manufactured products rose for a third month, up 0.91 per cent in May.

Vegetable prices rose overall by 12.94 per cent, after a 2.21 per cent rise in April.

Among food items, potatoes rose by the highest margin, of 60.01 per cent in May. These prices had turned inflationary in March, rising by 6.55 per cent after many months of decline, and then jumped 35.45 per cent in April. The price rise for pulses was almost the same, up 35.56 per cent in May, after a 36.36 per cent rise the previous month.

However, the decline in onion prices accelerated. It fell by 21.07 per cent in May, after dropping 18.18 per cent in April.

Incidentally, the consumer price index (CPI), measuring retail inflation, had risen in April by a higher-than-expected 5.39 per cent, after a six-month low of 4.83 per cent in March. Food inflation, biggest component of the CPI, had been responsible, rising 6.21 per cent in April, against 5.21 per cent in March. Retail inflation had then jumped in May to its highest levels in 19 months, to 5.76 per cent. Food inflation was 7.2 per cent.

Prices of manufactured products, with a combined weight of 65 per cent in the index, continued to rise, albeit slowly. The increase was 0.91 per cent, against a rise of 0.71 per cent in April. The manufactured food products sub-category, which includes sugar and edible oils, registered a significant rise of 7.54 per cent. This was mainly due to sugar prices, which rose by 22.3 per cent as against 16.07 per cent the previous month, on the back of expected shortages.

Prices for fuel and power continued to remain depressed, falling at a faster pace in May at 6.14 per cent, compared to a 4.83 per cent fall in April.

Petrol and diesel fell on global cues, although at a slower rate. The fall in petrol prices intensified, with a 10.86 per cent fall after another decline by 4.18 per cent the previous month.

"If crude oil prices sustain at current levels, average WPI inflation is likely to exceed 3% in 2016-17, given the substantial weight of mineral oils with non-administered prices in this index," said Aditi Nayar, senior economist at rating agency ICRA.

The country's Consumer Price Index (CPI)-based inflation for the month of May 2016 also rose to 5.76%, the highest in 19 months. 

The Indian Meteorological department has predicted a greater than normal monsoon in 2016 and fairly even distribution of rains. If the prediction comes true, food inflation may come down quite a bit. Also, it will have a moderating effect on crude prices.