WPI inflation climbs to 6.01% in May on higher food, fuel prices

New Delhi: India’s wholesale price-based inflation accelerated to 6.01% in May from 5.2% a month ago, led by higher food and fuel prices.

During the month, food inflation quickened to 9.5% from 8.64% a month ago, while fuel prices were up by 10.53% compared with 8.93% in the previous month.

The statistics department also revised the inflation number for March to 6% from the provisional figure of 5.7% released earlier.

Data released last week showed inflation measured by the Consumer Price Index (CPI) slowed to 8.28% in May compared with 8.59% in April as vegetable prices eased. The inflation rate for vegetables slowed to 15.35% in May from 17.5% in the previous month.

The divergence in CPI and WPI may baffle policy makers though the Reserve Bank of India (RBI) has made it clear that for policy purposes it will track the retail inflation.

RBI kept key interest rates unchanged this month, but said it may ease monetary policy if inflation slows faster than anticipated. The central bank kept the repo rate, at which it lends short-term funds to banks, at 8%, having raised it by 75 basis points to tame rising prices since governor Raghuram Rajan took office in September. One basis point is one-hundredth of a percentage point.

RBI, however, lowered the proportion of deposits banks must invest in government bonds to 22.5% from 23% with effect from 14 June.

Frequent rate hikes aimed at squeezing demand and curbing inflation have hurt investment.

For the first time since 2000-01, the investment rate contracted by 0.1% in 2013-14.

RBI said in its monetary policy review that it remained committed to keeping the economy on a disinflationary path, taking inflation measured by CPI to 8% by January 2015 and 6% by January 2016.

“If the economy stays on this course, further policy tightening will not be warranted. On the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance,” the central bank said.