"Positive rate of inflation in May, 2024 is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum & natural gas, mineral oils, other manufacturing etc," the Ministry of Commerce & Industry said in a statement on Friday.
May's WPI stood at a 15-month high. The last high was seen in February, 2023, when inflation was 3.85%. As per the data, inflation in food articles rose to a 10-month high of 9.82% in May.
Inflation in vegetables was 32.42% in May, up from 23.60 per cent in the previous month. Onion inflation was at 58.05%, while potato was 64.05%. Pulses inflation rose 21.95% in May.
Bank of Baroda Economist Aditi Gupta said food inflation is also likely to remain elevated due to severe heatwave in the country. Progress of the monsoon will play a key role in determining the trajectory of food inflation going forward.
"With severe heatwave conditions persisting in several parts of the country, prices of vegetables and fruits are witnessing an upward momentum even in June '24 and are likely to keep inflation elevated in the near-term," Gupta said.
Besides, an uptick in global metal prices has contributed to an increase in inflation in the manufacturing category. In manufactured products, inflation was at 0.78% in May, higher than (-) 0.42% in April.
Barclays Economist Shreya Sodhani said that the price index for manufacturing (which has the highest weight in the WPI, at 64%), has risen sequentially for the fourth straight month, indicating that firms' input costs are rising.
ICRA Chief Economist Aditi Nayar said the core-WPI (non-food manufacturing WPI) reverted to the inflationary territory in May 2024 after a gap of 14 months. This alone contributed as much as 57 bps to the 130 bps uptick in the headline print compared to April 2024.
In the fuel and power basket, inflation stood at 1.35%, marginally lower than 1.38% in April.
"Global commodity prices, including those for the Indian basket of crude oil have also retreated on a month-on-month basis in June 2024 so far. This would help contain the uptick in the year-on-year WPI inflation print in the month, countering the adverse base. Overall, ICRA expects the headline WPI inflation to inch up modestly to 3% in June 2024," Nayar said.
The rise in May WPI is in stark contrast to the
Retail inflation eased to 1 year low of 4.75% in May, data released earlier this week showed. Earlier this month, the RBI had kept the interest rate unchanged for the eighth time in a row.
Sodhani said while WPI was in deflation all of last year, the rise in wholesale prices this year is expected to gradually feed into retail prices, if firms' pricing power improves and consumption revives."We expect a window for monetary easing to open in December 2024, with a likely shallower rate cut cycle of 50bp in total," Sodhani added.