Only a day after we were told that retail inflation showed signs of improvement, here comes the news of a sharp rise in wholesale inflation. This was conveyed through a press release from the Ministry of Commerce and Industry on June 14.
The annual rate of Wholesale Price Index (WPI)-based inflation has hit a fresh high of 15.88 per cent (provisional) for the month of May 2022 (over May 2021). It had stood at 15.08 per cent in April 2022 and 13.11 per cent in May 2021. The high rate of inflation in May 2022 is primarily due to rise in prices of mineral oils, crude petroleum and natural gas, food articles, basic metals, non-food articles, chemicals and chemical products, food products etc., says the release.
The WPI inflation has extended its stay in the double-digit territory for 14 months in a row. The inflation rate for May is the highest in the current series, data for which is available starting April 2013. As such, the latest wholesale inflation number is the highest in at least nine years.
Vegetable inflation grew dramatically to 56.36 per cent in May from 23.24 per cent in April. The inflation for crude petroleum and natural gas surged to 79.5 per cent in May from 69.07 per cent in April. For minerals, the figure rose from 21.03 per cent to 33.94 per cent.
Given this high number for WPI inflation, can retail inflation be far behind? In its annual report released on May 27, the Reserve Bank of India (RBI) has cautioned that there is a risk of high WPI inflation putting pressure on retail inflation, albeit with a lag. The RBI says that high industrial raw material prices, transportation costs and global logistics, and supply chain bottlenecks continue to create pressure on core inflation.
With the inflation outlook elevated, the RBI was forced to hike the repo rate for the first time in four years, lifting it by 40 basis points (bps) in an off-cycle meeting in May. This was followed by an increase of 50 bps last week in the bimonthly monetary policy review, taking the repo rate to 4.90 per cent. The WPI inflation figures only indicate that the repo rate-raising spree may continue.