The wholesale price-based inflation accelerated to a record high of 12.94 per cent in May, on rising prices of crude oil and manufactured goods.
Low base effect also contributed to the spike in WPI inflation in May 2021. In May 2020, WPI inflation was at (-) 3.37 per cent. Significantly, this is the highest rate of WPI inflation in the current series. The previous high mark was observed in April.
This is the fifth straight month of uptick seen in the wholesale price index (WPI)-based inflation. In April, 2021, WPI inflation hit double digit at 10.49 per cent.
"The annual rate of inflation, based on monthly WPI, was 12.94 per cent for the month of May, 2021 (over May, 2020) as compared to (-) 3.37 per cent 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 per cent during May, against 20.94 per cent in April. In manufactured products, inflation stood at 10.83 per cent in May, against 9.01 per cent in the previous month.
However, inflation in food articles eased marginally to 4.31 per cent in May, even as onion prices spiked. Inflation in onion stood at 23.24 per cent in May, against (-) 19.72 per cent in April.
The RBI in its monetary policy 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 percent 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.
Retail inflation data for May is scheduled to be released later in the day.
"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 the corresponding month of the previous year," the Ministry of Commerce and Industry said in a statement on WPI.
Prof. Krupesh Thakkar, CFA, HoD, Financial Markets, ITM B-School, said, “Yet another month of the record high for the Wholesale Price Index (WPI), as it rose to 12.94 percent in May 2021 vs 10.49 percent in April 2021, partially owing to the unfavourable base of last year.
Sequentially, it has gone up by 0.76 percent led by an uptick in indices of fuel and power group (1.75 percent) and manufacturing products (1.24 percent) while the primary articles price index went down by 0.86 percent. There has been a persistent rise in the manufacturing price index owing to an increase in commodity price.
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 weight-age and relative base impact, but these pressures cannot be ignored.
Meanwhile, there are chances that the current base of WPI would be changed from 2011-12 to 2017-18 as per recommendations by a working group. This is a need of the hour so that the WPI basket represents a higher number of items (1176 from 697 currently) and the corresponding weight-age representing the structural changes in the economy. Also, as WPI is used as a GDP deflator, these changes are welcomed, he added.