Inflation based on the wholesale price index (WPI) accelerated last month to a record 7.4%, a surge that is expected to feed into higher retail prices in the near term. The price gains at the wholesale level were driven by a 10.3% increase in fuel and power, the quickest pace in two years, and the sharpest surge in manufactured products’ inflation at 7.3%.
March’s wholesale price inflation marks the highest level since the present Wholesale Price Index (WPI) series began, and economists expect the trend to continue for a few more months due to the base effects of last year’s national lockdown and a fresh spate of partial lockdowns that could disrupt supply chains.
“The annual rate of inflation stood at 7.39% (provisional) for the month of March 2021,” the Office of the Economic Adviser in the Department for Promotion of Industry and Internal Trade said in a release.
“However, month-on-month (March 2021 over February 2021) rate of inflation stood at 1.57 %. The prices of crude oil, petroleum products and basic metal substantially increased in March 2021 as compared to the corresponding month of last year,” it added.
The nationwide lockdown in March 2020 had also affected the computation of the WPI index, with an inflation of 0.4% recorded that month, the department pointed out.
Edible oil prices surge
The WPI food index hardened to 5.28%, from 3.31% in February, despite vegetable and cereal prices easing as manufactured food inflation touched a 49-month high of 9%. Within manufactured food products, edible oils recorded 34.2% inflation in March.
Among manufactured products, mild steel prices recorded 14.5% inflation, in line with the rise in global metal prices, and fed into other basic metals’ inflation rate which touched 17%.
“The WPI inflation recorded a broad-based hardening to a series-high 7.4% in March 2021 from 4.2% in February 2021, and printed much higher than our expectation of 6.1%, with faster than anticipated upticks in inflation for core items and fuels,” said Aditi Nayar, chief economist, ICRA Ltd.
‘Negligible policy space’
ICRA expects the headline and core WPI inflation to rise further over April and May, peaking at about 11.0-11.5% and 8-8.5%, respectively.
“The expected trajectory of the WPI inflation, and its partial transmission into the CPI inflation going ahead, supports our view that there is negligible space for rate cuts to support growth,” Ms. Nayar said.
