WPI at 4-month high in April; inflation rises to 3.18 % from 2.47% in March

Food prices overall beat deflationary trend but pulses, vegetables, wheat and meat continue to see prices drop

Pressure on inflation, retail as well as wholesale, is mounting. While the widely-tracked consumer price index (CPI)-based inflation rate rose to a three-month high of 4.58 per cent, its wholesale price index (WPI) counterpart increased to a four-month high of 3.18 per cent in April.

This might justify the hawkish stance of the monetary policy committee (MPC). 

The CPI inflation rate had stood at 4.28 per cent, and the WPI rate at 2.47 per cent in March. 

The widely-tracked core CPI inflation (non-food, non-oil) rate rose to a 44-month high of 5.9 per cent against 5.4 per cent in this period. 

On the other hand, core WPI inflation remained flat at 3.6 per cent.

Though the government did not fully pass on the rise in crude oil prices to consumers owing to the Karnataka elections, fuel prices drove up inflation.

The government waited for the Karnataka polls to be over before announcing hikes in petrol and diesel prices by 17 and 21 paise a litre, respectively. So the impact would be seen much more in May than in April.

Even then, the inflation rate in petrol zoomed to 9.58 per cent in April from 2.55 per cent in the previous month, while diesel saw prices rising at 13.01 per cent from 6.12 per cent in this period. 

Source: Ministry of statistics and programme implementation (Mospi) for CPI and Commerce ministry for WPI

Also, the retail inflation rate in petrol jumped to 8.08 per cent from 2.04 per cent in this period, while that in diesel doubled to 13.29 per cent from 6.13 per cent.

While the MPC had slightly revised downward its projections for inflation for 2018-19, it had said the recent volatility in crude oil prices had imparted considerable uncertainty to the near-term outlook.

“The risk posed by the sharp rise in crude oil prices could cause the CPI inflation trajectory to modestly exceed the forecast made by the monetary policy committee at 4.7-5.1 per cent for H1 FY2019,” said Aditi Nayar, principal economist, ICRA.

On whether the government would cut the excise duty or not, she said it might prefer to wait for more information on the level at which the monthly GST revenues stabilise after the e-way bill introduction.

Pressure on inflation may prompt the MPC, at least some members of it, to turn more hawkish. 

Nayar said, “While some MPC members may vote for a change in the stance in the June policy, we see a limited likelihood of a rate hike until there is greater clarity on various inflation and fiscal risks.”

Bond yields are likely to remain high in the near term, given the risk of rate hikes in the second half of the fiscal year, she added. 

There is a slight divergence between food inflation in terms of the WPI and CPI.

While the CPI remained more or less flat (2.80 per cent in April versus 2.81 per cent in March), the prices of food items increased 0.89 per cent in terms of the WPI against deflation at 0.29 per cent.

The WPI is more relevant than the CPI in gauging farmers’ distress, though it also has its own inadequacies because there are middlemen between farmers and the “mandis”. And prices of pulses, vegetables, and wheat went down in April, adding to farmers’ difficulties.

Prices of tomatoes, whose cultivators threw away their crop in Madhya Pradesh, continued to go down. However, deflation abated a bit. Tomato prices fell 6.39 per cent in April as compared to 26.48 per cent in March.