Wholesale food prices have skyrocketed month-on-month in May, with official data showing that the Whole Price Index for food rising from 5.52 per cent in April to 7.40 per cent in May.
In the food basket, cereals, paddy, pulses, vegetables, potato, onion, fruits, all spiked.
The overall wholesale inflation in India, based on the Wholesale Price Index rose to 2.61 per cent in May versus 1.26 reported in April, official data from the Commerce Ministry showed.
Thus, it remained in positive territory for the seventh month after remaining in the negative zone for seven months until October. The high rate of wholesale inflation in April was primarily due to an increase in prices of food articles and minerals
Also, high in May was was triggered due to an increase in prices of manufacture of food products, crude petroleum and natural gas, mineral oils, and other manufacturing.
Economists often say a little rise in wholesale inflation is good as it typically incentivizes goods manufacturers to produce more.
“Going ahead, inflation in the food articles is expected to rationalize by September/October 2024 as many of the kharif crops will be entering the mandis and supplementing the existing supply on the back of government strengthening the supply chains and expectation of above normal southwest monsoon, said Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry.
In April last year, the wholesale inflation went into negative territory. Similarly, in the initial days of COVID-19, in July 2020, the WPI was reported negative.
Overall wholesale inflation was 8.39 per cent in October 2022 and has fallen since then. Notably, the wholesale price index (WPI)–based inflation had been in double digits for 18 months in a row till September 2022.
The government releases index numbers of wholesale prices on a monthly basis on the 14th of every month (or the next working day). The index numbers are compiled with data received from institutional sources and selected manufacturing units across the country.
Meanwhile, India’s retail inflation rate softens marginally in May, continuing its moderation trend, though food prices continue to remain a pain point for the policymakers. Annual retail inflation in May was at a 12-month low of 4.75 per cent, marginally down from 4.83 per cent in April. The retail inflation or Consumer Price Index, in December last year was 5.7 per cent, and since has been moderating.
The retail inflation in India though is in RBI’s 2-6 per cent comfort level but is above the ideal 4 per cent scenario, and food inflation particularly is a concern.
Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
Going ahead, food price uncertainties would continue to weigh on the inflation outlook. Pressure in food prices has been interrupting the ongoing disinflation process in India, and posing challenges for the final descent of inflation trajectory to the 4 per cent target.