Wholesale price-based inflation (WPI) rose to a record 15.88 per cent in May from a year ago, its highest in the current series launched a decade ago, on rising prices of food items and crude oil, government data showed on Tuesday.
That suggest despite a softer reading in May’s retail price pressures data on Monday, it would be too early to call a peak in inflation.
May’s wholesale price inflation figure was above the 15.08 per cent in April, and sharply higher than 13.11 per cent in May last year and marks the highest in the current series base of 2012.
WPI has held above double digit rates for 14 straight months now, rising in each of the previous three months since Russia-Ukraine war.
That adds to worries the Reserve Bank of India would have to front-load rate hikes to stem soaring inflation and, in turn, that would dent the economy.
“The high rate of inflation in May, 2022 is primarily due to rise in prices of mineral oils, crude petroleum & natural gas, food articles, basic metals, non-food articles, chemicals & chemical products and food products etc. as compared to the corresponding month of the previous year,” the Commerce and Industry Ministry said in a statement.
Indeed the latest reading of WPI combined with retail inflation data from Monday indicate supply-driven inflation is here to stay.
A breakdown of the data showed, inflation in food articles in May was 12.34 per cent, as prices of vegetables, wheat, fruits and potato witnessed a sharp spike over the year-ago period.
The rate of price rise in vegetables was 56.36 per cent, while in wheat it was 10.55 per cent and in egg, meat and fish, inflation was 7.78 per cent.
In the fuel and power basket, inflation was 40.62 per cent, while in manufactured products and oil seeds, it was 10.11 per cent and 7.08 per cent, respectively. Inflation in crude petroleum and natural gas was 79.50 per cent in May.
While retail inflation eased to 7.04 per cent last month after hitting an eight-year high in April, it has stayed well above the RBI’s upper tolerance limit for the fifth consecutive month.
The central bank last week also projected retail inflation to remain elevated and over its target band of 2-6 per cent for the rest of this calendar year.
The RBI, which factors in the CPI in its monetary policy, had earlier this month raised the inflation forecast for the current financial year to 6.7 per cent from its previous estimate of 5.7 per cent.
The government has mandated the central bank to keep retail inflation at 4 per cent, with a tolerance level of plus or minus 2 per cent of that rate, which is between 2 and 6 per cent.
With the inflation outlook elevated, the RBI was forced to hike its key rate for the first time in four years, lifting it by 40 basis points (bps) in an off-cycle meeting in May and a follow-up 50 basis points increase last week, taking the repo rate to 4.90 per cent.
The repo rate is the rate at which RBI lends money to commercial banks and the latest inflation data suggests interest rates are set to keep rising.