Spike in food & fuel prices push WPI inflation to 13-month high in April

April's increase in factory gate inflation mainly powered by spikes in food and fuel prices

India’s wholesale inflation, measured by the Wholesale Price Index (WPI), rose sharply to a 13-month high in April, reaching 1.26 per cent from 0.53 per cent in March. As a result, WPI-based inflation remained in positive territory for the sixth consecutive month after staying in the deflationary zone for the major part of the previous financial year (2023-24). In April last year, wholesale inflation stood at minus 0.79 per cent.

Data released by the Ministry of Commerce and Industry on Tuesday showed that the uptick in factory gate inflation during April was primarily driven by spikes in the prices of food articles and fuel, among other factors.

Within food articles, pressure on factory gate prices mainly built up due to an acceleration in the prices of onions (59.7 per cent), vegetables (23.6 per cent), potatoes (71.9 per cent), and paddy (12.03 per cent).

Meanwhile, the prices of cereals (8.7 per cent) and pulses (16.6 per cent) decelerated during the month but remained elevated. On the other hand, price rises of fruit (minus 1.78 per cent) and protein-rich items like eggs, meat (0.88 per cent), and milk (4.3 per cent) provided some relief during the month.

The prices of manufactured products, which have a weighting of 64.2 per cent in the index, remained in deflation (minus 0.42 per cent) for the fourteenth consecutive month in April, led by continuing contraction in the prices of textiles (minus 1.24 per cent), paper (minus 6.93 per cent), chemicals (minus 3.61 per cent), metals (minus 3.65 per cent), among others. However, the prices of manufactured food products (1.25 per cent) accelerated during the month.

Factory gate prices for fuel and power (1.38 per cent) entered positive territory after 11 months in April, as the prices of high-speed diesel, cooking gas, and petrol accelerated during the month, even though they remained in contraction.

Rajani Sinha, chief economist at CARE Ratings, says that though the outlook for food inflation has brightened due to anticipation of a normal monsoon, which is expected to bolster agricultural production, monitoring the monsoon’s temporal and spatial distribution remains critical.

“Brent crude oil prices increased in April due to supply chain disruptions in West Asia amid geopolitical conflicts. While Brent crude oil prices have moderated in the past few weeks, the recent uptick in global commodity prices, especially industrial metal prices, warrants close monitoring as it can result in higher input costs. Going ahead, the base effect will remain adverse over the next two months, thereby resulting in higher WPI inflation. External risks emerging from ongoing geopolitical tensions also need to be monitored, given the risk they can pose to supply chains,” she added.

This uptick in factory gate inflation comes a day after the spike in food prices led only to a marginal decline in retail inflation to 4.83 per cent in April from 4.85 per cent in March, even though core and fuel inflation softened.

Although the Reserve Bank of India tracks retail inflation for its monetary policy, the expected elevation in WPI may end up keeping retail inflation sticky.