India’s wholesale inflation jumped to its highest level in six months, fueled by a steep rise in fuel and power prices that increased costs across the manufacturing and supply chains. The wholesale price index climbed to 9.68 percent in May, up from 8.26 percent the previous month and surpassing economists’ forecasts. This surge reflects growing pressure on producers as higher energy expenses ripple through transport, production, and raw materials.
Energy costs saw the most dramatic increases, with fuel and power prices up by more than 30 percent year-on-year, and petroleum and natural gas soaring over 60 percent. The rise closely tracks global crude oil prices, which averaged $106.20 per barrel in May, a significant jump from $69 in February. Domestic fuel pricing followed suit, with petrol and diesel costs increased by 3 rupees per liter mid-May—the first hike in four years—pushing gasoline prices near 98 rupees per liter in the capital. Despite these hikes, government fuel retailers continue to face substantial under-recoveries on petrol, diesel, and LPG cylinders, reflecting ongoing subsidy pressures.
Wholesale food inflation also accelerated, rising to 3.6 percent from 2.43 percent in April, while manufactured goods inflation approached 7.5 percent. This broad-based inflationary trend underlines that the impact of rising fuel costs extends well beyond petrol stations, affecting freight, electricity, and raw material expenses. Such cost pressures risk squeezing industrial profit margins and could ultimately influence retail prices if businesses pass these increases to consumers.
In contrast, consumer inflation remains more contained, with retail price growth measured at 3.93 percent in May, only modestly up from 3.48 percent in April and staying within the Reserve Bank of India’s target band of 2 to 6 percent. This divergence between wholesale and retail inflation contributed to the central bank’s decision to maintain the repo rate steady at 5.25 percent in early June, preserving its neutral monetary stance. The RBI simultaneously lowered its economic growth projection for the fiscal year and raised its consumer inflation forecast to 5.1 percent, highlighting the complex inflationary environment.
The principal concern for policymakers is whether the current surge in fuel costs will trigger second-round effects, pushing up overall consumer prices through rising transportation and input costs. If energy prices stabilize or decline, inflationary pressures may ease in the coming months. However, May’s wholesale inflation figures indicate that producer-level prices are already absorbing the full impact of higher fuel costs, suggesting that consumer inflation may eventually reflect these increases.
A structural update also accompanied the inflation data release, with the Office of the Economic Adviser revising the wholesale price index base year from 2011-12 to 2022-23. The new series, published with back data from April 2023 onward, aims to provide a more current and accurate measure of inflationary trends in India’s economy.