Retail inflation rises to 8.31% in March

WPI inflation ends FY14 at a 3-month high driven by higher food prices

Inflation is rearing its ugly head again, with both retail and wholesale inflation rising in March. This may diminish hopes of a rate cut by the Reserve Bank of India (RBI) anytime soon.

Retail inflation, as measured by the Consumer Price Index (CPI), increased to 8.31% in March against 8.03% in February, led by a sharp rise in the prices of vegetables and fruits. The increase in rural areas was 8.89% and urban areas 7.51%, showed the official data released today.

The wholesale price index-based inflation also rose to a three-month high of 5.7% in March from nine-month low of 4.68% in February. The higher-than-expected increase was mainly on the back of supply side constraints, primarily in food prices like potato and onion.

RBI, which is coming out with its next policy review on June 3, has set a target of 8% CPI by January 2015. If the increase in retail prices doesn't decelerate in April also it may not ease its monetary policy stance. In the last review on April 1, the central bank had kept the key policy rate unchanged.

CPI inflation increased on account of 17.19% rise in fruits, 16.8 in vegetables, 11.02% in milk and products, 9.61% in cereals and products, and 9.54% in egg, fish and meat. Core inflation (excluding items that face temporary price volatility such as food and fuel) remained unchanged at the February level of 7.9%, as per estimates by analysts.

	Wholesale Inflation
Month	Wholesale Price Index Inflation (% y-o-y)
Mar'13	5.65
Apr'13	4.77
May'13	4.58
June'13	5.16
July'13	5.85
Aug'13	6.99
Sept'13	7.05
Oct'13	7.24
Nov'13	7.52
Dec;13	6.4
Jan'14	5.17
Feb'14	4.68
Mar'14	5.7

WPI inflation stood higher in all the three broad categories--primary articles (unprocessed items), fuel and power, and manufactured goods. Core inflation increased from 3.2% in February to 3.5% in March.

"We maintain that non food, non fuel component is likely to edge higher going forward as well partially impacted by the low base effect setting in," said Bhupali Gursale, Economist, Angel Broking.

Though the RBI now takes Consumer Price Index as the barometer for deciding monetary policy stance, WPI can be an important indicator of consumer prices in some cases.

"It suggests that inflation pressures remain elevated. There will most likely be no further rate increases in the current cycle, but any previously small chance of a near term rate cut is now off the table completely," said Glenn Levine, Senior Economist, Moody's Analytics.

WPI food inflation went up to 9.90% in March from 8.12% in February. With fears of El Nino hitting the monsoon, food inflation may see further rise in the coming months. Within food category, vegetables prices increased 8.57%, compared with just 3.99% in February, while fruits turned expensive by 16.15% in March from 9.92% in the earlier month.

Retail Inflation
Month	Consumer Price Index Inflation (%)
Mar'13	10.4
Apr'13	9.39
May'13	9.31
June'13	9.87
July'13	9.64
Aug'13	9.52
Sept'13	9.84
Oct'13	10.17
Nov'13	11.16
Dec'13	9.87
Jan'14	8.79
Feb'14	8.03
Mar' 14	8.31

However, prices of pulses continued to decrease though at decelerating rate of 1.29% in March from 4.12% in February. Protein-based items also turned more expensive. Egg, meat and fish were dearer by 11.19% against 9.69% a month ago.

Fuel and power prices, which account for 15% of the index, rose 11.22% against 8.75%, led by accelerating LPG and diesel prices.

Manufactured product prices, which have been declining in recent months, also increased by 3.23% against 2.76%. Manufactured goods account for 65% of the index.

The industry urged the government to address supply constraints to prevent further jump in prices of various commodities at a time when it is seeing high borrowing and raw material costs. It also cautioned that the central bank should not try to address these supply side issues using interest rates as a tool.

"Demand in the economy is weak, as is evident from all indicators of growth. The Rupee has also strengthened, which has prompted the government to start reducing retail prices of petrol. Therefore, this rise in WPI inflation has to be attributed to supply side constraints in the agricultural side" said Chandrajit Banerjee, Director General, Confederation of Indian Industry.

Sidharth Birla, President, Ficci, said tackling food inflation should be the top priority for the incoming government. "Unless this critical economic variable is brought under control, we could see a lasting impact on the overall growth scenario," he said.

The data showed that the January inflation number has also been revised upward to 5.17%, against the earlier estimate of 5.05%.