A double-digit spike in vegetable prices pushed the wholesale price-based inflation to 0.79 per cent in May, prompting the industry to demand policy action for addressing supply side constraints.
With the firming up of both wholesale and retail inflation the Reserve Bank may delay the interest rate cut despite a sluggish industrial output.
The April WPI-based inflation was at 0.34 per cent and in March it was (-)0.45 per cent while it stood at (-)2.20 per cent in May last year.
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Inflation in vegetables stood at 12.94 per cent, a sharp rise from 2.21 per cent, a month earlier. Pulses inflation remained stubborn at 35.56 per cent.
Food inflation rose to 7.88 per cent in May as against 4.23 per cent in April, a government data showed.
"Policymakers need to address through supply side responses the continuous rise in prices of commodities like pulses, food articles, cereals, wheat and other items," Assocham Secretary General D S Rawat said.
Experts said a favourable base effect and a good monsoon would lead to some dip in wholesale food inflation in the immediate term.
"The trajectory of the WPI inflation would be shaped by global commodity price movements. If crude oil prices sustain at current levels, average WPI inflation is likely to exceed 3 per cent this fiscal," ICRA Senior Economist Aditi Nayar said.
As per the data, manufactured products inflation too inched up to 0.91 per cent from 0.71 per cent in April. Fuel and power inflation was (-)6.14 per cent in May.
The hardening of WPI food inflation follows the trend of retail inflation, released yesterday. RBI mainly takes into account retail inflation while formulating monetary policy.
Retail inflation touched a 21-month high of 5.76 per cent in May mainly due to rising prices of food items.
India Ratings and Research said that both retail and WPI moderated in September primarily led by softening food prices. "The trend is along expected lines and Ind-Ra believes it is likely to continue in the next month."
The all-powerful Monetary Policy Committee headed by RBI Governor Urjit Patel last week cut benchmark interest rates by 0.25 per cent to 6.25 per cent.
While he had signalled more tolerance towards inflation, the easing of CPI data was in line with the RBI's forecast for average 5 per cent inflation in fourth quarter of 2016. This, many expect, would create more room for interest rate cuts.
Reasoning the rate cut, RBI had said: "The Government has announced several measures to cool food inflation pressures, especially with regard to pulses. These measures should help in moderating the momentum of food inflation in the months ahead. This has opened up space for policy action".
The September inflation print for manufactured articles read at 2.48 per cent, as against 2.42 per cent in August.
The rate of inflation in sugar was at 32.92 per cent and that for petrol was 1.25 per cent.
ICRA Senior Economist Aditi Nayar said despite flaring up of crude oil prices it expects WPI inflation to remain below 4 per cent in third quarter. "Subsequently, WPI inflation is likely to rise to as much as 4.5 per cent in January-March 2017."
The WPI inflation for July has been revised upwards at 3.72 per cent, against provisional estimate of 3.55 per cent.
