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Fuel and energy inflation has nearly quadrupled to 37.6% from 9.75% recorded in March this year.
Indian wholesale price inflation rocketed to a record 12.94% in May, up from 10.5% in April, largely driven by a sharp spike in fuel and energy inflation, which rose to 37.6%, and the low base effect as of May 2020.
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Fuel and energy inflation has nearly quadrupled to 37.6% from 9.75% recorded in March this year, significantly higher than the 20.94% reached in April. Inflation for manufactured products rose to 10.83% from 9% in April.
While wholesale food price inflation rose slightly from 7.58% in April to 8.11% in May, on a sequential basis, the food price index cooled significantly from April.
ICRA chief economist Aditi Nayar said the major month-on-month food price correction was driven by perishables such as fruits and vegetables, suggesting the demand constraint is greater than supply disruptions amid mounting restrictions on food. state level imposed in May.
Wholesale price inflation for the month of March was also revised upwards from 7.39% to 7.89%, by the Office of Economic Advisers to the Ministry of Industry and Domestic Trade Promotion, which released preliminary estimates of the Wholesale Price Index (WPI).
The high inflation is mainly due to the low base effect and the rise in the prices of crude oil, mineral oils and manufactured products, it said in a statement. The month-on-month change in the WPI index for the month of May 2021 (compared to April 2021) was 0.76%.
The WPI had contracted by 3.37% in May 2020. Primary foods were the only category to see some moderation in the month, with inflation cooling from 10.2% in April to 9.6%.
The serial high wholesale inflation for May also coincided with a spike in core wholesale inflation, which is dependent on the prices of manufactured non-food products, which could last several more months, economists say. However, the pass-through of high wholesale inflation to retail prices may be limited due to weak demand.
Core WPI inflation hardened sharply to a run-high 10.0% in May 2021, with a broad upward trend across most subsectors. Core WPI inflation is expected to climb further to a new high of 10.4-10.9% in June, and remain in double digits until September 2021, Ms Nayar said.
Nevertheless, we foresee a limited transmission of the same to CPI inflation as tentative demand will keep pricing power in check in the near term, she said, adding that the continued rise in global crude oil prices, a weaker rupee and the upward revision in domestic fuel prices remain risk factors.
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