Explainer: What is keeping wholesale inflation in double digits for 14 months?

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Published : Jun 14, 2022, 10:38 PM IST

It is concerning for the policy makers as the wholesale prices were at a fresh high despite a very high base as wholesale prices were up by more than 13% in May last year. With this the WPI inflation was at the highest level since September 1991 when it was 16.31%.

It is concerning for the policy makers as the wholesale prices were at a fresh high despite a very high base as wholesale prices were up by more than 13% in May last year. With this the WPI inflation was at the highest level since September 1991 when it was 16.31%.

New Delhi: India’s wholesale prices measured as the wholesale price index (WPI) were at a high of nearly 16% in May this year, which is the 14th straight month when the wholesale prices are in double digits. It is concerning for the policy makers as the wholesale prices were at a fresh high despite a very high base as wholesale prices were up by more than 13% in May last year. With this the WPI inflation was at the highest level since September 1991 when it was 16.31%.

What are the factors that are driving wholesale prices to such a record high?

Sunil Sinha, principal economist at India Ratings and Research, says that inflation in primary articles and fuel and power were the key drivers of the wholesale inflation in the month of May. “The sustained pressure on the wholesale inflation due to rising input costs which are being passed on into the output prices continues unabated, and that is why despite a high base, the WPI inflation scaled to a fresh high” Sinha said.

As per the official data released by the office of economic advisor under the ministry of commerce and industries, primary articles inflation recorded a new high of nearly 20% in May, the fuel and power inflation stood at 40.62%, which is the second-highest level in the 2011-12 series.

Also read: WPI inflation spikes to record 15.88% in May on costlier food items, crude oil

Russia-Ukraine war led to high energy, commodity prices

High energy prices, which are primarily triggered by the Russia-Ukraine war, are the main factors behind such a strong rise in wholesale prices. For instance, the drivers of primary inflation were crude petroleum and natural gas which were nearly 80% higher than their prices a year ago.

In May this year, crude oil and natural gas prices were up by 79.5% against their prices in May 2021, a seven month high. Similarly, the prices of minerals were up by 34% in May this year in comparison with their prices in May 2021, which is a record.

Food and vegetable prices up by 32%

In addition to high energy and commodity prices, the food and vegetable prices are also trading at a fresh high in wholesale markets. For instance, fruits and vegetables prices were at a 29-month high of over 32% in May. Similarly, non-food articles were up by more than 24%.

Electricity, petrol, diesel and LPG prices

If the wholesale inflation is further broken down then the inflation in fuel and power prices has been led by categories such as electricity prices which were up by over 16% in May, mineral oils which were up by 62%, a five-month high, it also includes items such as petrol, diesel, LPG and aviation turbine fuel as each of them recorded a very high double-digit inflation in May this year.

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