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Fuel spike pushes WPI to 14-month high

Our Bureau New Delhi | Updated on June 14, 2018 Published on June 14, 2018

Producer inflation, technically known as the Wholesale Price Index (WPI), jumped to 4.43 per cent in May, hitting a 14-month high, largely on account of the spike in fuel prices.

The WPI was at 3.6 per cent in April this year and 2.26 per cent in May last year.

Government data released on Thursday revealed that inflation in the ‘fuel and power’ basket rose sharply in May to 11.22 per cent from 7.85 per cent in April, as prices of domestic fuel increased in line with rising global crude oil rates.

Food inflation

Inflation in vegetables climbed to 2.51 per cent, with potato inflation at a peak of 81.93 per cent.

The price rise in fruits was in double digits, at 15.40 per cent, while pulses saw a deflation of 21.13 per cent.

Aditi Nayar, Principal Economist at ICRA, said the May WPI surpassed the expectation of 4 per cent on account of a spike in inflation of non-food manufactured products (core WPI inflation), reflecting the pass-through of higher input costs to wholesale prices in several sectors.

Additionally, an expected uptick in the inflation of crude oil and various mineral oils contributed to the hardening of wholesale inflation.

Higher input costs

“The core WPI inflation rose sharply to a series-high 4.4 per cent in May 2018 from 3.6 per cent in April 2018, with a rise in 15 of the sub-indices, reflecting the pass-through of higher input costs, and a weaker rupee. In month-on-month terms, the index for non-food manufactured products recorded a fairly broad-based uptick of 0.8 per cent,” she noted. “WPI inflation is expected to harden by up to 80 bps in the ongoing month before easing a bit in the second quarter of FY19.

“Key factors that would influence the inflation trajectory include the level at which global crude oil prices stabilise and the extent to which they are transmitted to domestic fuel prices, the trend in the monsoon dispersion and the extent of change in MSPs,” she added.

Sunil Sinha, Director (Public Finance) at India Ratings and Research, observed that manufacturing inflation increased to 3.73 per cent in May from 3.11 per cent in April.

Price pressure, although still not visible across all manufacturing sectors, is visible and building up in vegetable oil, textile, apparel, basic metals, steel and chemicals, he said.

He added that even WPI-based core inflation increased to 4.4 per cent in May 2018, the highest since July 2014.

 

CPI-based inflation

The data published earlier had shown CPI-based core inflation crossing the 6 per cent mark. “Perhaps anticipating this trend in core inflation, the RBI did not wait till August and went for a 25-basis-point rate hike in the June review of the FY19 Monetary Policy. We expect one more rate hike by the RBI during the current fiscal,” he added.

Published on June 14, 2018
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