Rise in food, vegetables, minerals and fuel price inflation doubles May' Wholesale price index in one year to 4.43%

Last Updated: Thu, Jun 14, 2018 15:13 hrs
FILE PHOTO: A vendor waits for customers at his vegetable stall at a wholesale fruit and vegetable market in Mumbai

New Delhi: Wholesale Price Inflation (WPI) data for the month of May has doubled to 4.43%. Last year inflation data for the month of May reflected a number of 2.26%.

The data released by the Commerce ministry on Thursday, attributes this spurt to a rise in food and fuel prices.

The WPI which is at a 14-month high has been on an ascent in tandem with the rise in international crude prices. In February, government data revealed that the provisional WPI inflation stood at 3.18%.

According to data presented in the official press-note from the ministry, the index for the minerals group rose the highest at 13.7%, crude and petroleum at 7.3%, mineral oils by 4.1%, tobacco products by 2.5%.

Primary articles, that accounts for over a fifth of the entire wholesale price index grew by a margin of 3.16% in May from minus 1.71% a year ago.

Here are some quick observations:

  • Vegetables prices grew by 2.51% in May as compared with a dip of 18.37% a year ago. In the food articles category, prices of a handful of essential vegetables have increased in double digits. Potato has increased by a margin of 81.93, fruits by 15.40% and onion by 13.20%.
  • Although the table shows the ratings of majority items increasing on a year-to-year basis, there have been few products which have shown a price-cooling. Pulses (down by 21.13 in 2017-18), LPG (down by 0.74), Sugar (down by 19.46), that have seen a cool-off. Sugar as a manufactured product has cooled off by 19.46.
  • Fuel and power inflation, which had a weightage of 13.15% in the WPI, grew at 11.22% in May from 7.85% in April, and 11.81% a year ago.
  • Petrol prices were up by 13.90% in May from 9.45% in April, while diesel prices grew at a rate of 17.34% in the previous month as compared to 13.01% in April.

Here is an image of an Annexure from the ministry.

WPI is an indicator of bulk products that traders and large consumers regularly procure. The index reflects the trends in B2B prices. The WPI rate also referred to as the headline inflation rate is calculated in India by the office of the Economic Adviser, Department of Industrial Policy and Promotion with the ministry of Commerce and industry.

Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports. One of the striking features of the WPI index is that it does not cover services.

The index measures a change in prices of bulk commodities under majorly three groups such as primary articles, fuel and power and manufactured products. The index basket of the present 2011-12 series has a total of 697 items including 117 items included in primary articles, 16 items categorized under fuel & power and 564 items which have been clubbed under the head of manufactured Pproducts. The listing also includes agricultural commodities, tobacco products, minerals etc.

CPI too increases- Fodder for additional rate hike?
RBI Governor Urjit Patel in a file-photo. Will the RBI MPC bring about another rate-hike?

The rise in petrol and crude prices had prompted the Reserve Bank, earlier this month to raise key lending rate by 25 basis points to 6.25% for the first time in over four years. The RBI takes into account the Consumer Price Index (CPI) or the retail price to gauge inflation.

The retail inflation which is a barometer of what consumers pay for their products was also up the month of May. On Wednesday the CPI data released for the month of May showed a steep increase to 4.87% from 4.58% in the previous month (April). The RBI's monetary policy committee (MPC) had expected CPI inflation for the financial year 2018-19 at 4.8-4.9% for the first half of the financial year and 4.7% in the second one.

There has been a chatter that there could be a possibility for an additional rate hike from the RBI in it's next meeting. Although vegetable prices did not see a major increase, the rise in crude prices was factored in as one of the contributors to the rise in CPI inflation.

Besides crude prices, the RBI may also be prompted to consider the distribution pattern of monsoon before finalising on a rate announcement.

International crude prices have eased in this month after a rise in supply from US and OPEC countries. A meeting between OPEC and non-OPEC countries such as Russia on June 22 in Vienna has been reported to involve talks on uplifting supplies to ease rising crude prices. If the meeting turns out successful, the Petrol and Diesel rates could see further relief to the CPI as well as WPI inflation metrics.

(With agency inputs)

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