At 14.55%, WPI inflation spikes to 4-month high in March

Wholesale price inflation hit a four-month peak of 14.55% in March, mirroring a broad-based spike in global commodity prices, especially of oil, in the wake of the Ukraine crisis, showed official data released on Monday.

With this, inflation, based on the wholesale price index (WPI), scaled a 30-year peak of 12.96% in FY22, driven by an unfavorable base (it was only 1.3% in FY21) on top of the commodity rally.

The price pressure at the wholesale level far outweighs a rise in retail inflation, which, too, hit a 17-month peak of 6.95% in March, having breached the upper band of the Reserve Bank of India’s (RBI’s) target of 2-6 % for a third straight month. Most analysts expect the RBI to start rate hike cycle in June when the monetary policy will be reviewed next.

Given that the WPI is dominated by raw materials and intermediate goods, the sustained rise in the index spells trouble for corporate India and reinforces its struggle to cope with rising input costs at a time when its ability to pass on the soaring costs to consumers has been impaired by a fragile demand recovery.

Unsurprisingly, WPI inflation in crude petroleum surged to 69.20% in March and price pressure in the fuel and power segment – comprising petrol, diesel and LPG – jumped to 34.52%, way above headline inflation.

The divergence between WPI and Consumer Price Index that gauges retail inflation is mainly due to the composition of the two price gauges; food items make up as much as 46% of the CPI.

Importantly, while WPI food inflation inched down a tad to 8.06% in March from 8.19% in the previous month, core inflation spiked to 10.9% from 10%, having remained sticky for a year now. Within the manufactured products segment, edible oils, which are mostly imported, jumped to 16.06% in March from 14.90% in the previous month.

Economists at India Ratings flagged the broad-based rise in WPI inflation in March and expect it to remain in high-single digit in FY23, despite a high base kicking in from April 2022.

Aditi Nayar, chief economist at Icra, said, “We remained concerned that even a normal monsoon may not be enough to douse the retail prices of those items that are pushing up food inflation, such as edible oils.” Nayar expected WPI inflation to remain in the range of 13.5-15% in April, partly depending on where crude oil prices settle in the rest of this month and how much petrol and diesel prices are revised further.

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