Wholesale Inflation Rises to 9.68% in May, Experts Flag Hormuz Reopening Impact

India's wholesale inflation accelerated to 9.68% year-on-year (YoY) in May, up from 8.26% in April, according to data released by the Ministry of Commerce and Industry on Monday. The figures are based on the revised Wholesale Price Index (WPI) series, which uses 2022-23 as the new base year.

The latest reading exceeded economists' expectations. A Reuters poll had forecast wholesale inflation at 9.05% for May.

The index for All Commodities stood at 109.9 in May, up from 108.8 in April.

"The revised framework reflects structural changes in the Indian economy, incorporates a larger basket of commodities, and adopts improved methodologies for weighting, index compilation, and treatment of missing data. The new WPI basket contains 957 items compared to 697 items in the previous series and includes emerging energy sources such as solar, wind and nuclear power," said Rajeev Juneja, President, PHDCCI.

Fuel, Energy Prices Drive the Surge

Across major groups, year-on-year inflation in Primary Articles, Fuel and Power, and Manufactured Products stood at 4.99%, 30.33%, and 7.48% respectively in May. In April, these figures were 3.78%, 24.89%, and 6.68%.

The indices for these three groups stood at 113.7, 113, and 107.8 respectively in May, compared with 112.6, 110.9, and 107 in April.

The fuel and power category recorded the sharpest rise, with inflation accelerating to 30.33% in May from 24.89% in April. Inflation in crude petroleum and natural gas surged 61.51% in May.

The Ministry attributed the overall rise to higher prices of fuel, food articles and select manufactured products. Elevated crude oil prices, driven by tensions in West Asia, continued to push up input costs across sectors. The surge came during the third month of disruptions linked to the conflict between the United States and Iran, although concerns eased somewhat after the two countries agreed to a ceasefire, helping stabilise global energy markets.

Among major groups, mineral oils containing petroleum products, crude petroleum and natural gas, chemicals and chemical products and basic metals were the major drivers of WPI inflation in April and May.

The Food Index, which combines food articles from the Primary Articles group and food products from the Manufactured Products group, recorded year-on-year inflation of 4.49% in May, up from 3.11% in April.

"The recently announced framework agreement between the United States and Iran, including the proposed reopening of the Strait of Hormuz, could have important implications for wholesale inflation in India," Juneja further said.

"The parallel publication of WPI and PPI over the next five years will facilitate a smooth transition toward a producer price framework that is increasingly adopted across advanced and emerging economies. Going forward, the expanded data on producer price indicators is expected to strengthen inflation analysis, and improve industry-level price monitoring," said Ranjeet Mehta, SG and CEO, PHDCCI.

Retail Inflation

The wholesale inflation data comes days after India's retail inflation accelerated to 3.93% in May, as food and fuel prices firmed amid the West Asia tensions.

Last week, the Reserve Bank of India raised its inflation forecast for FY27, citing growing risks from higher food and energy costs. The central bank now expects consumer price inflation to average 5.1% in FY27, up from its earlier estimate of 4.6% announced in April.

The latest WPI data may add to concerns that rising producer-level prices could eventually feed into consumer prices if cost pressures persist.