May WPI inflation at five-month high of 6.01 percent

By Rajesh Kumar Singh

NEW DELHI (Reuters) - India's wholesale price inflation rose to a five-month high in May, adding to worries that disappointing rains could lead to higher food prices and turmoil in Iraq could cause a spike in global oil prices.

Wholesale prices in May rose a faster-than-expected 6.01 percent, driven mainly by higher food and fuel costs, government data showed on Monday.

The rise compared with a 5.4 percent year-on-year jump forecast by economists in a Reuters poll. In April, wholesale prices rose 5.20 percent, the slowest in two months.

The data comes days after the release of data showing consumer price inflation hit a three-month low of 8.28 percent in May. The central bank closely tracks consumer inflation when setting interest rate policy.

Elevated costs for for food items, particularly vegetables and fruits have added to inflationary pressures. Higher potato and onion prices pushed up wholesale food inflation to 9.50 percent last month from 8.64 percent in April.

Upasna Bhardwaj an economist at Ing Vysya Bank said the numbers were "very shocking."

"Though it is a broad-based uptick, food prices have surged sharply," she said.

She expected price trajectory to be volatile in the next few months due to uncertainty over the monsoon rains and outlook for crops.

Bond yields fell and the rupee weakened after the data. The benchmark 10-year bond yield rose 3 basis points to 8.64 percent. The rupee weakened to 60.23 per dollar, its lowest level since May 6.

Prime Minister Narendra Modi, who took office on May 26, has listed fighting inflation, particularly food inflation, as his priority, and low rainfall will make it harder for him to bring prices under control.

The weather department has predicted below average rainfall between June-September this year, which could hit summer crops such as rice, corn, soybean and cotton, exacerbating price pressures and impacting economic growth.

(Additional reporting by Swati Bhat in MUMBAI; Editing by Frank Jack Daniel and Simon Cameron-Moore)