India's wholesale price index increased by 4.43 percent on the year in May, accelerating from 3.18 percent in April, and advanced 0.94 percent on the month, after an increase of 0.69 percent previously. This is the second consecutive increase in WPI inflation, with CPI data released earlier in the week also showing a pick-up in consumer inflation from 4.58 percent in April to 4.87 percent in May, further above the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.
The increase in WPI inflation in May reflects stronger gains in food and fuel prices. Food prices, which account for around 15 percent of the index, advanced by 1.60 percent on the year in May, up from 0.87 percent in April, with vegetable prices increasing by 2.51 percent on the year after falling 0.89 percent previously. The year-on-year increase in fuel and power prices (around 13 percent of the index) picked up from 7.85 percent in April to 11.22 percent in May, while inflation for manufactured products (around 64 percent of the total index) increased from 3.11 percent to 3.73 percent.
At their latest policy review, held last week, the RBI's Monetary Policy Committee increased policy rates and revised up their near-term consumer inflation forecasts in response to to pick-up in underlying price pressures seen in April. Headline CPI inflation is now forecast to be 4.8 percent to 4.9 percent in the first half of the new fiscal year, compared with a previous forecast of between 4.7 percent and 5.1 percent, and to fall to 4.7 percent in the second half, compared with the previous forecast of 4.4 percent.
At last week's meeting officials also noted several risks to the inflation forecast that could prompt further upward revisions to these forecasts in coming months, while stressing again their determination to keep inflation close to 4.0 percent. This suggests further rate increases may be considered in order to help bring headline inflation back toward this level. The next policy review is scheduled for early August.