May wholesale inflation reaches record 12.94% as high fuel costs continue to hurt

May wholesale inflation reaches 12.94% as high fuel costs continue to hurt

Wholesale inflation in the country reached a massive 12.94 percent in May, as the constant rise in cost of fuel, including petrol, LPG and high speed diesel percolated down into the economy and a low base effect pushed up figures.

Measured by the Wholesale Price Index (WPI), wholesale inflation in India began FY22 with a major rise. It had already spiked in the previous month of April when it reached 10.94 percent, up from March's 7.89 percent, and February's 4.83 per cent. The pace of inflation has now accelerated for the fifth-month in a row.

While it has been on a continuous uptick from December onwards, when it was just 1.9 percent, the latest figures show how spiraling fuel prices and therefore transport costs, have led to costs spiking economy wide in May.

The month saw fuel inflation shooting up by 37 percent, almost double of April's 21 percent. According to the WPI, after reducing for 11 straight months, overall fuel prices had risen by just 2 percent in February. But since that it has escalated quickly.

Case in point, petrol prices rose by 62.3 percent in May, up from 42.4 percent in April and 21.7 percent in March. It was just 4.9 percent in February. LPG prices soared by 61 percent in May, up from 20.3 percent in April, 10.8 percent in March and just 1.4 percent in February.

Manufactured items costlier

Also, prices of manufactured products, which have a combined weight of 65 per cent in the index, rose by a sharp 10.8 percent. Manufactured product prices have also risen over the months. Prices had risen by 9.01 percent in April, up from March's 7.8 percent and February's 6 percent.

"The core-WPI inflation (non-food, manufactured products) is expected to climb further to a new series-high 10.4-10.9 percent in June 2021, and sustain in double-digits until September 2021. Nevertheless, we foresee a limited transmission of the same to the CPI inflation, as cautious demand will keep pricing power in check in the immediate term," Aditi Nayar, Chief Economist, ICRA said.

However the continuous uptick in inflation of primary articles, which incudes foods, abruptly stopped in May after reaching a four-month high in April. The large month-on-month correction in May 2021 in food prices, driven by perishables such as fruits and vegetables, suggests that with the widening state level restrictions, the fall in demand outweighed supply disruptions, Nayar pointed out.
The continued rise in global crude oil prices, a weaker rupee and the upward revision in domestic fuel prices remain risk factors for wholesale inflation in the upcoming months. However, ICRA expects WPI inflation to recede modestly to 11.9-12.3 percent in June 2021, as the base starts to normalise, Nayar said.