Prices in the wholesale market fell to a 4.5-year low level in May, recording a deflation of 3.21%, due to sharp decline in fuel and power items even as food articles turned expensive.
The Wholesale Price Index (WPI) has hit its lowest level since November 2015, when deflation was 3.7%.
"The annual rate of inflation, based on monthly WPI, stood at (-3.21%) (provisional) for the month of May, 2020 as compared to 2.79% during the corresponding month of the previous year," the Commerce and Industry Ministry said in a statement on Monday.
However, inflation in food articles during May stood at 1.13%, as against 2.55%in April.
WPI inflation in pulses continued to remain in double digits at 11.91%, against 12.31% in April. In potato, inflation was 52.25%, even as vegetables witnessed a deflation of 12.48% in May.
Inflation in protein-rich items like egg, meat and fish was 1.94% in May.
Data collected by the government at the retail level, which was released last week, showed a year-on-year rise in food inflation at 9.28% in May, led by pulses, meat and fish, and oils and fats.
In fuel and power basket, deflation stood at 19.83% in May, as against 10.12% in the previous month.
Manufactured products too witnessed deflation of 0.42% during the month.
Due to the nationwide lockdown imposed on March 25, the ministry had released truncated WPI inflation data for the month of April, with figures of food, primary articles and fuel and power.
However, it has advised its field offices to collect price data through electronic means and the final index for the month would be released next month.
"Price data is collected from selected institutional sources and industrial establishments spread across the country online through web based portal maintained by the National Informatics Centre (NIC)," the Ministry said.
The final print of March WPI inflation stood at 0.42% as compared to its provisional levels of 1% reported on April 14, 2020, the ministry said.
ICRA Principal Economist Aditi Nayar said, while the rise in prices of some commodities like crude oil, may arrest the fall in the WPI going ahead, easing food price pressure portend a welcome moderation in retail food inflation.
The minutes of the Monetary Policy Committee's (MPC) last meeting revealed a considerable degree of alarm from some of its members, she said.
Accordingly, we expect the MPC to continue to prioritise alleviating the pain caused by the fall in economic activity, over management of inflation that will almost certainly turn out to be moderate in the near term.
Therefore, we expect another 25 bps cut in the repo rate, whenever the MPC chooses to meet next," Nayar said.
The Reserve Bank last month cut policy rates by 0.40%, taking the key repo rate to its lowest ever 4%.
As per the minutes of the meeting of monetary policy committee, RBI Governor Shaktikanta Das underlined the need to ease financing conditions for reviving consumption and revitalising investment once the coronavirus-induced lockdown is lifted.