Inflation - May 2021

Why in news?

The official data for wholesale (WPI) and retail (CPI) inflation for May 2021 was released.

What is the current inflation scenario?

• WPI - The wholesale price index (WPI) hit an all-time high of 12.49% in May 2021.
• It touched the double-digit mark of 10.49% in April (2021).
• This is the fifth straight month of rise in WPI inflation.
• CPI - Consumer Price Index (CPI) reached its highest levels in 6 months, at 6.30%.
• This is much higher than April's 4.23%.
• It is also outside the Monetary Policy Committee's inflation targeting range of 4 (+/-2)%.
• The breach is witnessed for the first time since November 2020.

What led to the rise?

• The WPI increase is a result of a spike in prices of manufactured products, crude petroleum, and mineral oils.
• Runaway fuel prices, that include high excise duties and taxes, were a key factor in driving up both the inflation indices.
• No respite is in sight on this front as pump prices for petrol raced past Rs. 100 a litre in some parts of the country.
• A low base effect of May last year also contributed to the spike in inflation in May 2021.
• The WPI inflation stood at (-)3.37% in May 2020.
• Also, retail inflation in food hit a six-month high of 5%, from barely 2% in April.
• Pulses and eggs as well as edible oils led the surge.
• Even if food and fuel prices are discounted, core inflation has crossed the 6% mark for the first time in 31 months and is estimated at 6.6%.

What does this imply?

• Inflation is expected to remain higher than the average 5.1% estimated by the RBI for 2021.
• The rise in inflation has disturbed the hopes of economic recovery after the pandemic-driven lockdowns are relaxed.
• The Monetary Policy Committee may not switch away from its less stringent policy.
• But, no further easing of interest rates can be expected at these price levels.

What is the way forward?

• The Government may want the RBI to persist with its accommodative approach to facilitate growth.
• In that case, the government must take some actions of its own to curb price rise.
• This includes meaningful cuts in fuel taxes that the RBI Governor has been advocating for long.
• People are already facing job and income losses and higher medical costs since the pandemic’s onset.
• Given this, emergent action is needed to rein in inflation.

Source: The Hindu, Financial Express