May WPI accelerates to five-month high level; creeps up to 6.01% v/s 5.20% in April

In a nasty surprise for the policy makers and the new government, the annual rate of inflation, based on monthly WPI, came in at highest level since December 2013, at 6.01% for month of May, 2014, as compared to 5.20% in April and 4.58% during corresponding month in the previous year. Meanwhile, build up inflation rate in the financial year so far was 0.78% compared to a build up rate of 0.76% in the corresponding period of the previous year. Additionally, March inflation figures were revised upwards to 6% against 5.07% earlier.

The sharp uptick in headline inflation was mainly on account of higher food and fuel price. The manufactured products’ inflation too jumped to thirteen-month high level, with the index, which occupies the majority 64.97% weight in the overall index, inching up by 0.5% to 154.6 (provisional) from 153.8 (provisional) for the previous month.

Meanwhile, pressure also came in from inflation of Primary Articles, which occupies 20.12% weight in the headline inflation index, edged higher to 1.8% to 246.8 (provisional) in May from 242.5 (provisional) in April on the back of rising food inflation, which grew by 2.3% at 244.3 for the month under review against 238.8 in April. The rise in food inflation was due to higher prices of coffee (23%), poultry chicken (7%), fish-inland (6%), tea and fruits & vegetables (4% each), condiments & spices, fish-marine, urad and masur (3% each), rice and moong (2% each) and milk, barley, pork, mutton and arhar (1% each).

Additionally, index for ‘Fuel & Power’ group also rose by 0.5% to 212.1 (provisional) from 211.0 (provisional) for the previous month due to higher price of electricity (agricultural) and electricity (railway traction) (3% each), electricity (commercial), electricity (domestic), light diesel oil and electricity (industry) (2% each) and high speed diesel (1%). 

In yet another disconcerting sign, core inflation too edged higher to 3.08% v/s 3.04% in April. This data definitely expected to act as party-pooper for the new government and policy makers who expects inflation to go southwards. Also, this is in complete divergence to retail inflation data, which eased to three-month low level of 8.28% in May, sending out signals that RBI could consider slashing rates in its upcoming monetary policy in August.