India’s WPI Inflation Runs At 30-Yr High, Indicating Accelerated Rate Hikes 


The Wholesale Price Index (WPI)-based inflation maintained its increasing trajectory for the third month in a row, and remained in double digits for the 14th consecutive month since April last year. WPI inflation was 15.08 percent in April 2022 and 13.11 percent in May 2021. Within primary articles, the index for food articles rose 2.4 percent from April, with price momentum particularly strong for vegetables (up 18.5 percent month-on-month).

High global energy and raw material prices combined with a weak rupee fueled the fastest annual rise in India’s wholesale prices in more than 30 years, raising expectations for the central bank to order more interest rate hikes. A surge in crude oil and commodity prices since Russia invaded Ukraine in February has set inflation alight in many countries, forcing central banks to raise interest rates.

Wholesale prices, akin to producer prices, climbed 15.88% in May from year ago levels, staying in double-digits for a 14th straight month, and was, according to economists, India’s highest since September 1991. The high rate was primarily due to rising prices for crude petroleum and natural gas, food items, basic metals and chemical products, the Ministry of Commerce and Industry.

Prices for manufactured products, contributing around 64% to the wholesale price index (WPI), rose 10.11%, compared to 10.85% in the previous month, while fuel and power costs increased 40.62% from a year ago period. On Monday, India reported retail prices had risen 7.04% in May from year ago levels, moderating slightly from the eight-year high of 7.79% posted in April. The dismal reports for the two main measures of inflation led economists to expect the Reserve Bank of India (RBI) to raise key interest rates at its next policy meeting in August.

Food prices, contributing about a quarter of the WPI index, climbed 10.89% in May, though vegetable prices rose 18.26% in May year-on-year, compared to 23.24% in the previous month. An uptick in wholesale food and energy prices is likely to feed into retail prices as the companies increasingly pass on high input costs to consumers. Adam Hoyes, economist at Capital Economics Singapore said May’s WPI figures suggested upside risk to consumer food inflation, which is politically sensitive in India.

Inflation in Key Commodities

The government announced a series of tax structures levied on essential commodities and trimmed fuel tax to cushion consumers from rising prices and fight high inflation. A sharp spike in the prices of white, potatoes, tomatoes and other vegetables has kept inflation elevated. Crop yields are down because of dry spells and heat waves in the northern part of the country.

Food inflation which accounts for nearly half the CPI basket rose to 7.97 percent year on year in May. A nearly 5 percent fall in the rupee against dollar has made imports even costlier.

The rate of price rise in fuel and light category in the retail inflation basket also rose in the preceding months.

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