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All-round rise in commodity prices and the crude oil trending up pushed up both retail and wholesale inflation levels. While the Consumer Price Inflation zoomed to a six-month high of 6.3 per cent, the Wholesale Price Inflation hit a new high of 12.94 per cent in May.
The CPI and the WPI had been at 4.23 per cent and 10.49 per cent, respectively, in April.
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Food inflation is expected to ease with the arrival of monsoon seasonWith the retail inflation beyond the RBI’s comfort band of 2-6 per cent, any possibility of a rate has faded. The Monetary Policy Committee has been on a pause mode since last May. Now, with both inflation and inflationary expectations trending up, the MPC is likely to maintain status quo, considering requirement for growth.
Retail Inflation
Edible oil, egg, meat and fish along with fruits pushed the headline retail inflation to a new high. The inflation rate for the ‘oil and fat’ category was around 31 per cent while for eggs it was over 15 per cent. For fruits, it was nearly 12 per cent while for ‘meat & fish’ it was around 9 per cent. In fact it was all-round price increase as core inflation (headline inflation minus food and fuel inflation) increased by 1.5 per cent on a month-on-month basis to 6.6 per cent in May.
Sunil Kumar Sinha, Principal Economist, Ind-Ra, said although it is still too early to think that retail inflation will remain in excess of 6 per cent given the high base of last year, “Ind-Ra believes a rising wholessale inflation, which is gradually finding a reflection in the retail inflation, is going to make things difficult for the RBI.” However, given the growth inflation dynamics, Sinha believes the RBI will not be in a hurry to tinker with either the policy rate or its accommodative policy stance.
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In April 2020, most units reported nil output because of total lockdownWholesale Inflation
According to the Department for Promotion of Industry and Internal Trade, the high rate of inflation in May is primarily due to the low base effect and the rise in the prices of crude petroleum, mineral oils (petrol, diesel, naphtha, furnace oil, etc.) and manufactured products compared to the corresponding month of 2020. The key contributor to the WPI surge is the ‘fuel & power’ category which registered 37.6 per cent in May against 20.94 per cent in April.
Aditi Nayar, Chief Economist with ICRA, terms the jump as the ‘double whammy of high global commodity prices and a low base.’ The core-WPI inflation (manufactured non-food products) hardened to a series-high 10 per cent in May, with a broad-based uptrend across most sub-sectors. The core-WPI inflation is expected to climb to a new series-high 10.4-10.9 per cent in June, and sustain in double-digits until September. Nevertheless, “we foresee a limited transmission of the same to the CPI inflation, as cautious demand will keep pricing power in check in the immediate term,” she said.
Table
Retail Inflation
(In %/Bae 2012 = 100)
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