Wholesale inflation in India, based on the Wholesale Price Index, rose to 2.61 per cent in May, marking the seventh consecutive month in positive territory after remaining negative until October. This increase was primarily driven by higher prices of food articles and minerals, with spikes seen in cereals, paddy, pulses, vegetables, fruits, and more. Additionally, prices of manufactured food products, crude petroleum, natural gas, mineral oils, and other manufacturing also contributed to the higher inflation rate. Economists note that a slight rise in wholesale inflation can incentivize goods manufacturers to produce more.
The government releases wholesale price index numbers every month, compiled from data received from institutional sources and manufacturing units across the country. In contrast, retail inflation in India softened slightly in May but food prices continue to pose challenges for policymakers. Annual retail inflation in May stood at a 12-month low of 4.75 per cent, down marginally from 4.83 per cent in April. While the retail inflation rate is within the RBI’s comfort level of 2-6 per cent, it remains above the ideal 4 per cent scenario.
To combat inflation, the RBI has raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022. This increase is a monetary policy measure aimed at suppressing demand in the economy to reduce the inflation rate. However, uncertainties around inflation persist, with food price uncertainties expected to continue impacting the inflation outlook. Food inflation has been a challenge in India, disrupting the disinflation process and hindering the descent of the inflation trajectory to the 4 per cent target set by the RBI.
Overall, despite the rise in wholesale inflation in May, the retail inflation rate is showing signs of moderation. However, food prices remain a concern and a key factor influencing inflation. The RBI’s efforts to raise interest rates are aimed at curbing inflation by reducing demand in the economy. Moving forward, uncertainties around inflation, particularly related to food prices, are likely to persist and impact the overall inflation outlook in India. Policymakers continue to monitor the situation closely to ensure that inflation remains within manageable levels and does not adversely affect the economy.
