The wholesale price-based inflation accelerated to a record 12.94% in May, on account of rising prices of crude oil, manufactured goods and a low base of last year. In May last year, WPI inflation was (-) 3.37% and in April 2021, WPI inflation hit double digit at 10.49%. This is the fifth straight month of uptick seen in the wholesale price index (WPI)-based inflation.
"The annual rate of inflation, based on monthly WPI, was 12.94% for the month of May, 2021 (over May, 2020) as compared to (-) 3.37% in May 2020. "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," the Commerce and Industry Ministry said.
Inflation in fuel and power basket spiked to 37.61% during May, against 20.94% in April, amid hardening of global commodity prices. Prices of crude petroleum and other fuels had crashed last year in May due to lockdowns across the globe which had caused demand to plummet. In manufactured products, inflation stood at 10.83% in May, against 9.01% in the previous month.
However, inflation in food articles eased marginally to 4.31% in May, even as onion prices spiked. Inflation in onion stood at 23.24% in May, against (-) 19.72% in April.
ICRA Chief Economist Aditi Nayar said the core-WPI inflation (manufactured non-food products) hardened sharply to a series-high 10% in May 2021, with a broad-based uptrend across most sub-sectors.
"The continued rise in global crude oil prices, a weaker rupee and the upward revision in domestic fuel prices remain risk factors for the upcoming WPI print. However, we expect the headline WPI inflation to recede modestly to 11.9-12.3% in June 2021, as the base starts to normalise, Nayar added.
PHDCCI President Sanjay Aggarwal said high fuel inflation is escalating the input costs of the industry and its competitiveness in the domestic and international markets. "At this juncture, we urge the government to consider petroleum products in the ambit of GST to rationalize the prices and to contain the rising inflation," Aggarwal added.
ITM B-School HoD, Financial Markets, Krupesh Thakkar said though RBI might not look into these numbers too cautiously, these cost-push pressures would be seen in the Retail Inflation with a lag.
"Of course, the yearly Consumer Price Index (CPI) figures do depend on its segment weightage and relative base impact, but these pressures cannot be ignored," Thakkar added.
The RBI, which takes into account retail inflation while framing monetary policy, had earlier this month kept interest rates unchanged at record lows and committed to maintain an accommodative policy stance to support growth.
RBI pegged retail inflation at 5.1% in this fiscal ending March 2022, with upside risks from higher commodity prices and re-emergence of higher supply constraints amidst the current phase of lockdowns.