Wholesale price inflation reaccelerated in March as price growth across all the major WPI categories increased. Food price inflation ticked higher as vegetable prices rose quickly, especially potatoes. Fuel prices also rose at a faster pace, with LPG and diesel prices both accelerating, while petrol price growth eased slightly. But perhaps the biggest surprise was in the price of manufactured goods, which grew at their fastest pace since May 2013. This is the closest that India has to a core rate of inflation and it suggests that supply and demand are close to balanced after core inflation trended lower through much of 2013. This may be because of better demand, but more likely it is at least partly due to supply constraints.
This set of WPI numbers has implications for the near term monetary policy outlook. The RBI has lately paid closer attention to the CPI, but the WPI is still important and can in some instances be a leading indicator of consumer prices. 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.
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