India’s wholesale inflation remains high, but falling global crude oil prices and a stable rupee may ease future price pressures. This could give the Reserve Bank of India (RBI) room to delay any immediate interest rate hike despite a sharp jump in wholesale inflation, according to a YES Bank report.

The report highlighted that the revised Wholesale Price Index (WPI) inflation rose to 9.7% year-on-year in May, up from 8.3% in April, pointing to persistent cost pressures across the economy. Fuel inflation was a major driver, surging 30.3% due to higher prices of petrol, natural gas, and other petroleum products, while manufacturing inflation increased to 7.5%, showing widespread price gains.

YES Bank noted that recent global commodity trends could offer some relief. It pointed to expectations of easing crude oil prices and softer industrial metal costs, supported by developments such as a possible US–Iran peace agreement. The report added that lower crude prices, along with a stable Indian rupee and a weaker US dollar, could reduce imported inflation and limit further fuel price increases by oil marketing companies. It also suggested that these conditions may allow the RBI to postpone rate hikes further, as inflation risks moderate.

Based on these factors, the bank has reduced the likelihood of an August rate hike, saying the RBI may prefer to wait for clearer signals, including weather-related risks like El Niño. While consumer inflation remains within the RBI’s projections, risks from food prices and rising inflation expectations continue to be monitored. The report noted the government’s shift toward a new Producer Price Index (PPI) system, where Output PPI is expected to gradually replace the WPI over the next five years.

Disclaimer: This image is taken from ANI.