The inflation for primary articles and fuel & power group eased to 11.3% and 12.3% in May 2011 from 12.0% and 13.3% in April 2011, but the inflation for manufactured products increased to 7.3% in May 2011 from 6.2% in April 2011. However, the inflation reading for March 2011 has been revised sharply upward to 9.68% from 9.04% reported earlier.

The rise in wholesale price index during May 2011 at 9.06% was ahead of market expectations. As per Capital Market's poll of economist, the WPI inflation for May 2011 was expected to remain steady at 8.7%. The economists responding to the poll had projected the inflation in the range of 8.3% to 9.1% for May 2011. The median of the economists forecast's for inflation for April 2011 stood at 8.7%.

The inflation for primary articles has eased to 11.3% in May 2011 from 12.06% in April 2011. The fall in the inflation for primary articles was mainly driven by sharp fall in inflation for non-food articles (from 27.3% to 22.3%) and food articles (from 8.7% to 8.4%), while the inflation for mineral rose to 11.9% from 7.4% in April 2011.

The inflation for fuel and power group eased from 13.3% in April 2011 to 12.3% in May 2011. Within the group, the inflation for coal declined to 13.3% in May 2011, while the inflation for electricity tumbled to -1.3% on high base. Among the mineral oils, the inflation for petrol surged to 27.3% during May 201, due to petrol price hike in mid-May 2011, from 21.8% in April 2011.

The inflation for manufactured product increased from 6.2% in April 2011 to 7.3% in March 2011. Within Manufactured group, the inflation for food products increased to 7.3% in May 2011, led by rise in inflation for sugar (from 3.3% to 5.3%), edible oils (12.9% to 15.5%) and tea leaf (6.0% to 15.2%). Meanwhile, the inflation for ‘textiles' (15.9%) and ‘basic metal products' (7.9%), ‘chemical and chemical products' (7.1%) and ‘Transport, equipment & parts' (4.0%) also increased during May 2011. However, the inflation for ‘leather products' (-1.4%) and ‘rubber & plastic products' (8.7%) eased during May 2011.

During May 2011, WPI based inflation rate stood at 9.06%, of that 282 bps came from primary articles, followed by 434 bps from the manufactured products group and 189 bps from fuel products group. WPI based inflation for May 2011 was 40 bps higher at 9.06% compared to 8.66% reading in April 2011.

Based on available data, in the past 16 months from February 2010, WPI based inflation was 10% or above for five months, and 9% or above for 8 months, and between 8.2% and 8.9% on only 3 months. In the past 27 months from March 2009, WPI was always higher sequentially (higher than the previous month) in 26 months, and only in February 2010, it was same as in January 2010. In these circumstances, RBI has clearly indicated, "Reining in inflation should therefore take precedence even if there are some short-term costs by way of lower growth". So, despite the fact that IIP growth decelerated sharply from 13.1% in April 2010 to mere 6.3% in April 2011 (Base 2004-05), RBI may hike repo rates by another 25 basis points in the ensuing mid term policy review.