High food prices drive WPI inflation


Wholesale prices rose to 0.8 per cent in May from a year ago, driven by higher food prices, making it difficult for the central bank to reduce interest rates in the short-term.

This is the second month in succession that the WPI is remaining in positive territory. Last month, inflation as measured by the wholesale price index (WPI) was at 0.34 per cent, its first gain in 18 months, according to data released by the Centre.

The acceleration in WPI, coming as it does after a quickening of retail inflation in the same month, makes it even more unlikely that the Reserve Bank of India will cut interest rates shortly, according to economists.

Retail sync

The WPI rose due to food inflation which shot up to 7.9 per cent from 4.2 per cent in April. The same trend could be seen in retail inflation as well where only the food category accelerated inflation.

“Inflation at the wholesale level rose in sync with trends witnessed in the retail print,” Richa Gupta, Senior Economist, Deloitte said.

“Food continued to push the headline print higher while the effect of rising global commodity prices was also larger in the index due to its close correlation with domestic prices. Vegetable prices rose to take inflation in the category into double digits with potato prices rising by 21.54 per cent,” Ms.Gupta said.Within the primary articles basket, while food inflation accelerated, non-food inflation eased considerably in May to 4.5 per cent from 7.1 per cent in April.

Supply side response

“Policymakers need to check and address through supply-side responses, the continuous rise in prices of commodities like pulses, food articles, cereals, wheat and other items of national interest ,” said D.S. Rawat, Secretary General, The Associated Chambers of Commerce and Industry, India.

The fuel and power segment in the WPI contracted 6.1 per cent in May compared to a contraction of 4.8 per cent in April. This was led bythe mineral oil segment, which contracted 9.6 per cent in May compared to a contraction of 7.9 per cent in the earlier month.

Manufactured goods

Inflation in manufactured goods rose marginally to 0.9 per cent in May from 0.7 per cent in April.

“Manufacturing inflation is unlikely to be a cause of concern as weak demand across the globe is likely to keep prices subdued,” Ms Gupta said.Mr.Rawat said the WPI figures “may give some relief to manufacturers and producers since earlier it was hampering their pricing power, profitability and limiting their potential to increase capital expenditure.”

Worrying trend

Overall, the view is that rising inflation coupled with poor industrial growth is a worrying trend.

“The declining trend in index of industrial production (IIP) and rising WPI may have a negative impact on the country’s economy in the long run,” Mr. Rawat said.