India's wholesale price inflation surged to a record high of 9.68% in May, driven by a sharp increase in fuel and power costs amid continued energy market disruptions stemming from the conflict in West Asia.
According to data released by the Ministry of Commerce and Industry on Monday, the Wholesale Price Index (WPI)-based inflation accelerated from 8.26% in April to 9.68% in May, exceeding economists' expectations of 9.05%. The latest reading is the highest under the revised WPI series with the new base year of 2022-23, replacing the earlier 2011-12 base year. The revision marks the first update of the WPI series in nine years.
The surge in wholesale inflation was largely led by fuel and power prices, which recorded an annual increase of 30.33% in May compared with 24.89% in April. Inflation in crude petroleum and natural gas rose to 61.51%, up from 56.31% in the previous month.
The sharp rise reflects the impact of global energy shocks triggered by the conflict involving Iran, which disrupted oil markets and pushed crude prices higher. Since the outbreak of the conflict in late February, global crude oil prices have risen significantly, prompting state-run oil marketing companies in India to increase retail fuel prices multiple times during May.
Wholesale inflation continues to run well above retail inflation, highlighting the disproportionate impact of higher energy costs on producers and businesses. India's consumer price inflation stood at 3.93% in May, remaining within the Reserve Bank of India's (RBI) target band.
Food inflation at the wholesale level also showed an uptick. Wholesale food prices rose 3.60% year-on-year in May, compared with 2.43% in April. Prices of manufactured products increased by 7.48%, up from 6.68% in the previous month, indicating broader pricing pressures across industrial sectors.
Despite the sharp rise in wholesale inflation, economists do not expect an immediate change in the RBI's monetary policy stance. The central bank, which targets retail inflation of 4% with a tolerance band of 2% to 6%, kept interest rates unchanged in its June policy review and signalled that it would closely monitor any second-round effects of elevated fuel prices on consumer inflation before considering policy tightening.
There are, however, signs of potential relief ahead. Global oil prices eased recently after reports that the United States and Iran had agreed on a framework to end hostilities, lift restrictions on Iranian oil exports, and reopen the Strait of Hormuz, a critical route for global energy shipments.
Analysts believe the cooling of international energy and commodity prices following the easing of geopolitical tensions in West Asia could help moderate wholesale inflation in the coming months. As a result, the WPI inflation reading for June may show some improvement if crude oil prices continue to soften.
The latest data nevertheless underscores the vulnerability of India's wholesale prices to global energy market disruptions and highlights the continued inflationary pressures facing businesses across the economy.