India's wholesale price index increased by 2.17 percent on the year in May, down sharply from 3.85 percent in April. The index fell 0.35 percent on the month in May.
The drop in WPI inflation in May was driven mainly by food and energy prices. Prices for food articles, around 15 percent of the index, fell 2.27 percent on the year in May after increasing by 1.16 percent in April, while the year-on-year increase in fuel and power prices (around 13 percent of the index) slowed from 18.52 percent in April to 11.69 percent in May. There was also a slight fall in the year-on-year increase in the prices of manufactured goods (around 64 percent of the index) from 2.66 percent to 2.55 percent.
Consumer price index data released earlier in the week also showed a big drop in headline inflation from 2.99 percent in April to 2.18 percent in May, the lowest level since the series was introduced in 2012. Officials at the Reserve Bank of India have been surprised by the reversal in headline inflation in the last two months after price pressures had strengthened earlier in the year, announcing last week a downward revision to their inflation forecasts for the current fiscal year. The RBI now believes CPI inflation is on track to average between 2.0 percent and 3.5 percent in the first half of the fiscal year and between 3.5 percent and 4.5 percent in the second half, with risks "evenly balanced".