The wholesale price-based inflation shot up to an eight-year high of 7.39% in March on rising crude oil and metal prices. Also, the low base of March last year, when the data was computed with a low response rate due to the nationwide lockdown, contributed to the spike in inflation in March 2021. The wholesale price index (WPI) inflation was 4.17% in February 2021 and 0.42% in March 2020. This is the third straight month of up-tick seen in the wholesale price index (WPI) based inflation.
"The annual rate of inflation stood at 7.39% (provisional) for the month of March 2021 over March 2020," said the Commerce and Industry Ministry. Such a high level of WPI was last recorded in October 2012, when inflation was 7.4%. Inflation in food articles in March was 3.24% as prices of pulses, fruits and paddy hardened.
In pulses, it was 13.14% in March, while in fruits and paddy, inflation was 16.33% and 1.38%, respectively. In vegetables, the rate of price rise softened to (-) 5.19%, against (-) 2.90% in the previous month. Inflation in the fuel and power basket was 10.25% in March, against 0.58% in February on higher fuel prices. In manufactured products, inflation was 7.34%.
"The prices of crude oil, petroleum products and basic metal substantially increased in March 2021 as compared to the corresponding month of last year. Also, due to nationwide lockdown, the WPI index for the month of March 2020 was computed with a relatively low response rate," the Ministry said while releasing the WPI data.
ICRA Chief Economist Aditi Nayar said the steep month-on-month jump in WPI-inflation was driven by metals, textiles, chemicals, rubber etc, as many of them recorded large price increases globally in recent months on the back of the optimism generated by the rollout of the COVID-19 vaccine. "While crude oil prices have retreated from the peaks seen in March 2021, a falling base is expected to push up the inflation for this segment as well as mineral oils further in April 2021,” she said.
Aditi Nayar also said, "Moreover, the depreciation in the INR will push up the landed cost of imports, adding to the inflationary pressures for the WPI going forward," she further added. ICRA expects 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," she added.
India Ratings & Research Chief Economist Devendra Kumar Pant said higher wholesale inflation transmits to retail inflation with a lag, this makes the job of monetary authorities very difficult. "The economy at present juncture needs both fiscal and monetary support (both low rates and ample liquidity). While Ind-Ra expects the policy rates to remain low at the same level and ample liquidity in most of FY22, spurt in wholesale prices may force monetary authorities to withdraw some of the extraordinary liquidity measures around the end of FY22," Pant added. Retail inflation, as per data released earlier this week, rose to a 4-month high of 5.52% in March.
The RBI in its monetary policy earlier this month kept policy rates unchanged and said it will maintain an accommodative monetary policy stance to support growth and keep inflation at the targeted level. It projected retail inflation at 5.2% in the June quarter.