India’s May Wholesale Inflation Climbs to 9.68% as Middle East Conflict Sparks Fuel Surge

India’s wholesale price inflation (WPI) accelerated sharply to 9.68% year-on-year in May, exceeding the 9.05% forecast by economists, according to government data released on Monday. The surge, marking the fastest pace of growth in six months, was driven primarily by an energy shock originating from the military conflict in the Middle East. Fuel and power prices skyrocketed by 30.33% compared to last year, while crude petroleum and natural gas prices leaped by 61.51%, reflecting a 27% spike in global oil prices since the outbreak of hostilities in late February.

The jump in wholesale prices stands in stark contrast to India’s retail inflation, which remained relatively stable at 3.93% in May. Despite the widening gap, economists do not anticipate an immediate hike in interest rates. The Reserve Bank of India, which targets retail inflation within a 2% to 6% band, maintained a status quo on interest rates during its June meeting. The central bank plans to carefully monitor the economy for any second-round spillover effects from prolonged high fuel costs before opting to tighten monetary policy.

While pressure built up across other sectors—with manufactured products up 7.48% and food prices rising 3.60%—relief may be on the horizon. A preliminary peace agreement between the U.S. and Iran to end the war and reopen the Strait of Hormuz has already triggered a downward trend in global crude prices. Analysts expect this cooling of energy and commodity markets to bring much-needed respite to India’s wholesale inflation numbers starting in June. Notably, this data release also marked the debut of India’s revised WPI series using a 2022-23 base year, alongside new experimental Producer Price Indexes (PPI) for goods and services.

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