Wholesale inflation soars to 12.94% in May on fuel price surge, low base

According to data released by commerce and industry ministry, fuel and power inflation stood at 37.61% led by higher petrol and diesel prices

India's wholesale inflation hit a record high of 12.94 per cent in May driven by continued rise in fuel and commodity prices as well as due to a low base effect, data released by the government showed.

Wholesale inflation came in at 10.49 per cent in April. In May 2020, wholesale prices, whose increase or decline is measured in terms of wholesale price index (WPI), witnessed deflation at (-) 3.37 per cent as demand slackened due to the pandemic induced lockdown. The latest inflation rate released by the government is the highest under the current series.

“The high rate of inflation in May 2021 is primarily due to low base effect and rise in prices of crude petroleum, mineral oils viz. petrol, diesel, naphtha, furnace oil etc. and manufactured products as compared to the corresponding month of the previous year,” an official statement said.

According to data released by the commerce and industry ministry on Monday, fuel and power inflation stood at 37.61 per cent led by higher petrol and diesel prices. Fuel and power and inflation was 20.94 per cent in April and (-) 23.08 per cent a year earlier. According to CARE Ratings chief economist Madan Sabnavis fuel prices are likely to be upward bound on the back of elevated global crude oil prices amidst rebound in domestic economic activities as the second wave of coronavirus subsides.

Price rise in manufacturing products that accounts for close to two-third of the index, was 10.83 per cent.

Food prices rose to 4.31 per cent in May, as compared to 1.66 per cent during the same period a year earlier and 4.92 per cent in April. Inflation in non-food articles hit an eight-year high of 18.4 per cent as compared to over 15.6 per cent a month ago and a contraction of 3.9 per cent in May 2020. Softening of food prices such as fruits, vegetables on a sequential basis is likely due to state-wise restrictions imposed to control the second wave of Covid-19.

“The core-WPI inflation (manufactured non food products) hardened sharply to a series-high 10.0 per cent 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 per cent in June 2021, and sustain in double-digits until September 2021,” Aditi Nayar, Chief Economist, ICRA said.

Economists said that the rate of price rise is expected to remain high in the coming months owing to a consistent rise in global commodity prices.

“On the global front, elevated prices of crude oil, metals and edible oils will exert upward pressures on the wholesale inflation as India is a price taker for most of these commodities. Combined with a low base effect, WPI inflation will tend to be above 10 per cent in the coming months,” Sabnavis said.