Wholesale inflation in March surges to second highest since 2004

This surge comes as commodity prices harden amid the Russia-Ukraine offensive

The wholesale price index (WPI)-based inflation rate in March shot up to the second highest level in the current 2003-04 inflation series as commodity prices hardened amid the escalating Russia-Ukraine conflict.

The data released by the industry department on Monday showed wholesale price inflation rate rose to a four-month high of 14.55 per cent in March. This is a tad behind the record high of 14.87 per cent in November last year.

With the March figures in, WPI remained in double digits throughout FY22 with the average inflation at 12.96 per cent in the financial year. This is the highest in 30 years.

The Russian invasion of Ukraine has put an upward pressure on food and commodity prices, forcing the Reserve Bank of India (RBI) to reassess its accommodative policy stance.

In its latest monetary policy review earlier this month, the central bank kept key policy rates unchanged. However, it signalled that it would prioritise keeping inflation in check over incentivising growth.

The RBI revised downwards its growth projection for FY23 to 7.2 per cent from 7.8 per cent.

But it raised its inflation forecast for the year to 5.7 per cent from 4.5 per cent, assuming crude oil prices are at $100 per barrel.

India’s retail inflation shot up to a 17-month high at 6.95 per cent in March, data released last week showed. It remained above the tolerance limit of the RBI for the third straight month.

A survey of economists by Business Standard showed that the elevated inflation may trigger a series of policy rate hikes by the RBI, beginning with the June policy review.

During March, the wholesale food inflation rate eased sequentially to 8.06 per cent. However, vegetable price rises remained elevated at 19.88 per cent.

Among non-food items, crude petroleum rose by a whopping 83.56 per cent in March, leading to a fuel inflation rate of 34.52 per cent during the month.

Manufactured price inflation rate returned to double digits in March at 10.71 per cent after a gap of two months as edible oil and basic metals rose by 16.06 per cent and 25.97 per cent, respectively. Core inflation, which excludes volatile food and fuel items, rose to 10.9 per cent in March from 10 per cent in February.

Sunil Kumar Sinha, principal economist at India Ratings, said as the margins of manufacturers have been under pressure due to rising input, transportation and logistics costs, they are passing on these to the output prices. This is leading to higher inflation in manufactured products.

“The higher input cost, especially of raw materials, has aggravated due to the Russia-Ukraine conflict.

As the conflict does not seem to be coming to an end soon, the headwinds arising out of the disruption in the global supply chain coupled with uncertainty will continue to put pressure on domestic wholesale inflation,” he added.

Aditi Nayar, chief economist at ICRA, said the jump in crude oil prices was the biggest contributor to the rise in the WPI inflation in March relative to the previous month. This was followed by fuels and core items.

“We expect the WPI inflation to remain in the range of 13.5-15 per cent in the current month. This is partly depending on where crude oil prices settle in the rest of April and how much petrol and diesel prices are revised further. The broad-based nature of the rise in WPI inflation is likely to be of particular concern to the Monetary Policy Committee. We see a growing probability of the first repo hike being advanced to June,” she added.