Wholesale inflation falls sharply to 2.1% in May as food prices crash

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India’s wholesale inflation sharply slowed to 2.17 percent during May from 3.85 percent in April, driven by plunging vegetable and onion prices that have become emblematic of rural distress across many states.

Latest price data released by the Commerce Ministry today showed that food prices, especially potato, onion and pulses, continued to fall for the third consecutive month owing to a supply glut.

Wholesale inflation rate, measured by WPI, is a marker for price movements in bulk buys for traders and broadly mirrors trends in shop-end prices.

Slump in prices of vegetables, potatoes, pulses, onions and fruits have led to a decline in the index for ‘primary articles’– which accounts for more than a fifth of the entire wholesale price index — to (-)1.79 percent in May from 4.38 year percent ago.

A sustained decline in prices of vegetables, potatoes and onions have been worrisome as these do not attract minimum support price (MSP)– where the government purchases crops from the farmers, irrespective of how steep or low the prices of crops are.

For the month of May, retail and wholesale inflation are surprisingly identical due to similar reason—massive decline in food prices. India’s retail inflation rate fell to 2.18 percent in May, lowest since 2012.

Prices potato plummeted nearly (-) 44.36 percent in May, as against a growth 83.98 percent last year, while that of food articles fell (-) 2.27 percent from 6.82 percent the year before.

Similarly, prices of onions fell 12.86 percent in May as compared with (-) 34.74 percent last year, while prices of pulses slumped 19.73 percent from a growth of 31.23 percent year ago.

Fuel and power inflation stood at 11.69 percent as against (-) 14.87 percent last year.

Prices of leather and leather related products also declined 4.40 percent, compared with a growth of 4.69 percent year ago.

The index portrays new series of WPI data released by the government last month, with 2011-12 as the base year, replacing existing the base year of 2004-05.

The change in baseline for the WPI was much needed, in order to capture structural changes in the economy and improve the quality, coverage and representatives of indices. WPI has undergone seven revisions in base year, from time to time.

The weightage of primary articles have been increased to 22.6 percent, with the new base year, compared with 20.12 percent.

The index of manufactured products, which accounts for 64.23 percent of WPI rose 2.55 percent in May from (-) 0.63 percent.

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