India WPI inflation surges on rise in food, fuel prices; slashes hopes of rate cut

India’s wholesale prices, as measured by the wholesale price index (WPI) for the month of May, surged on rise in food and fuel prices, which has raised concerns that the Reserve Bank of India (RBI) wouldn't slash rates at the upcoming policy meeting. The RBI has set the inflation target of five percent to be achieved by March 2017, to necessitate an easing bias.

WPI rose to 0.79 percent in May compared to the corresponding period a year ago, rising above market expectations, according to government data released Tuesday. According to a poll of 10 economists, WPI was expected to come in at 0.5 percent, compared to 0.34 percent in April, recording its first gain in almost 18 months.

On the other hand, wholesale food prices rose 7.88 percent y/y in May compared to a provisional 4.23 percent y/y in April. The index for food articles group rose by 2.8 percent to 271.1 from 263.8 for the previous month while that for the non-food articles group rose by 0.4 percent to 226.4 from 225.6 for the previous month.

The index for fuel and power rose by 2.8 percent to 180.3 from 175.4 for the previous month due to higher price of furnace oil, high speed diesel and kerosene, aviation turbine fuel, petrol and bitumen.

Meanwhile, India’s consumer price index-led inflation rose 5.76 percent in May, well above expectations, from 5.39 percent in April, official data released Monday showed.

However, the south-west monsoon which hit the Kerala coast on June 8, a week later than expected, is expected to gradually bring down food inflation. The monsoon is critical to the Kharif crop as over half of India’s farmland lacks assured irrigation and the country receives 80 percent of its annual rainfall during the four months starting in June, reports said.