Wholesale price inflation soared to an eight-year-high in March driven by a jump in fuel, manufactured products and metal prices, signalling the strengthening of inflationary pressures and posing a fresh challenge for policymakers and ruling out any interest rates cuts for now.
Official data released on Thursday showed inflation, as measured by the wholesale price index (WPI), accelerated to 7.4% in March, higher than the 27-month high of 4.2% in February. This is the highest inflation rate recorded in the new data series. The previous high was 7.4% in October 2012.
The sharp rise in March was also attributed to the low base as data for March 2020 was computed with a low response rate due to the nationwide lockdown.
The spike in WPI came against the backdrop of an increase in retail inflation, which jumped to a four-month high in March.
The NDA government had been so far been successful in taming inflation since assuming power in May 2014, but a string of factors and the Covid-19 pandemic has added to pressures on the prices front and triggered unease among households dealing with job losses, salary cuts and uncertainty.
Data showed that wholesale inflation in the manufactured products segment rose to an eight-year high of 7.3% in March, highlighting the return of pricing for manufacturers as the economy opened up, and global metal prices strengthened. The inflation rate in the fuel and power segment rose to a two-year high 10.3%, compared with a decline of 2.9% in March 2020, which was attributed to the surge in global crude oil prices. Vegetable prices declined due to improved supplies.
With the manufactured products category, vegetable and animal oils and fats rose an annual 34.2%. High edible oil prices have added to the burden of household budgets. Manufactured food inflation shot up to a 49-month high of 9% largely led by edible oils.
“We expect the headline and core WPI inflation to rise further over the next two months, peaking at around 11.0-11.5% and 8-8.5%, respectively, in May 2021. 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, in spite of the growing uncertainty related to the surge in Covid-19 cases, localised restrictions and emerging concerns regarding migrants returning to the hinterland,” said Aditi Nayar, principal economist at ratings agency ICRA.
