India’s wholesale price index (WPI)-based inflation, which is a measure of how much goods cost before they reach consumers, increased to 2.61% in May, marking the highest jump in 15 months since February 2023 when it was at 3.85 percent.
This rise was mainly fueled by higher prices of food items, according to government data released on Friday (14 June, 2024).
According to Reuters, the Wholesale Price Index (WPI), which reflects the prices producers receive for their goods, climbed to 0.53% in March and 1.26% in April.
In January and February, the WPI was at 0.33% and 0.20% respectively, following a December rate of 0.86% and a November rate of 0.39%.
Food prices saw a notable increase of 7.4% compared to the previous year, with vegetable prices rising by 32.42% over the same period. This surge in food prices contributed significantly to the overall inflation.
Prices of manufactured products increased by 0.78% compared to the previous year, after experiencing a 0.42% decrease in the preceding month. Meanwhile, fuel and power prices rose by 1.35%, slightly less than the 1.38% rise seen in April.
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India’s retail inflation rate saw a slight decrease in May, dropping to 4.75%, according to government data released on Wednesday (12 June, 2024). This was partly due to a decline in fuel prices, although food prices remained high.
RBI Policy and Inflation
In June, the Reserve Bank of India (RBI) decided to keep the policy repo rate at 6.5%, indicating that interest rate cuts may be delayed.
Despite the unpredictable fluctuations in food prices, the RBI’s monetary policy committee decided to keep the current rate pause in place until there were clear signs of inflation easing.
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Interest rates play an important role in the central bank’s efforts to control inflation. Raising interest rates makes borrowing more expensive, potentially reducing demand and consumer spending by tightening the market’s liquidity.
It’s important to remember that retail inflation, as measured by the Consumer Price Index (CPI), fell to 4.75% in May from 4.83% in April, its lowest level in a year.
This decline was influenced by lower price increases for a variety of foods, including meat, fish, dairy products, vegetables, and spices.
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