WPI drops to 3-yr low, but food inflation continues to soar

India's Wholesale Price Index (WPI) dropped for a fourth straight month in May to a more than three-year low of 4.70 per cent, down from 4.89 per cent in April, according to industries ministry data released today.

This raised some hopes that the Reserve Bank of India will ease its monetary policy in its mid-term review due on Monday. However, analysts caution against high hopes due to the sinking rupee, which is hovering around all-time lows, as well as high consumer price inflation.

The WPI fall was on the back of cheaper manufactured goods and fuel products rather than a fall in food or consumer product prices, showed the data. Consumer price inflation rose 9.31 per cent in May (See: Consumer price inflation marginally lower at 9.31% in May).

Inflation in manufactured items, which have a 65 per cent weightage in the WPI basket, slowed to a 41-month low of 3.11 per cent in May, compared with 3.41 per cent a month before. Fuel products saw 7.32 per cent inflation last month, compared with 8.84 per cent in April.

After four straight month of decline through April, food inflation - which has a high weightage in the Consumer Price Index – soared to 8.25 per cent in May from 6.08 per cent a month before as prices of onion and cereals surged.

Nonetheless and despite the uncertainty of further rate cuts from the central bank, the WPI figures boosted stock exchange indices in this morning's trading, with the BSE Sensex jumping 275 points and the broader Nifty advancing 85 points.