Wholesale inflation hit 15.08% in April, the highest since September 1991, official data shows on Tuesday. The Wholesale Price Index (WPI) has doubled for the 13th consecutive month.
The latest WPI print reinforces the notion that retail inflation may not be on a downward trajectory yet. Inflation hit an 8-year high of 7.79% in April, based on broad-based increases in price pressures across food, energy and key stocks, data released last Thursday.
Analysts attribute the sustained high WPI inflation in part to an unfavorable basis, but the upward movement for more than a year is an underlying signal, sticking price pressure.
Analysts say the outlook for glomerular demand in global Covid-affected China and the moderation in global commodity price growth, however, could reduce the risk of WPI inflation arising from a weaker rupee in May. Nevertheless, any significant restraint of WPI in May is unlikely, although it will drop below 15%, they added.
In view of the sustainable increase in the cost of raw materials and intermediate products (these products dominate WPI), producers in a large number of sectors may be forced to pass on the burden of price rise to consumers, despite the relative relaxation of overall individual demand.
After refraining from an out-of-cycle revision to its inflation forecast earlier this month, when it raised the repo rate by 40 basis points to 4.4%, the Reserve Bank of India (RBI) will now have to sharpen its forecast for it. June quarter and full year (FY23) 6.3% and 5.7% from April estimates, respectively.
Rising costs of farm inputs such as fertilizers, rising international crop prices, and extreme weather-related disruptions could push food inflation to even higher levels in the coming months. The weakness of the rupee will push up the cost of imports of crude and commodities. Also, the government is ready to announce a higher minimum support price for the kharif crop in early June, adhering to the formula that the price of the farm gate should be the cost of paying and at least 50% profit.
The latest data shows that Core WPI inflation is at a four-month high of 11.1% in April, as against 10.9% in March, indicating that there is already some pass-through. This will partially offset any potential gains from supply-like interventions (such as wheat export bans) and a favorable WPI base, and will probably spread over time, albeit at the retail level.
Even then, WPI inflation outweighs the price pressure of retail inflation, which reflects the complete inability of producers to increase costs. Differences also occur due to different combinations of the two price gauges (like 46% of the food item consumer price index).
Nevertheless, sharp rise in both inflation indicators in April has raised the possibility of an aggressive repo rate hike by the central bank in the forthcoming meetings after a 40 basis point increase of 4.4% after an off-cycle increase of 40 basis points in May. ICRA chief economist Aditi Nair had expected an increase of 40 basis points in June and another 35 basis points in August.
In April, WPI inflation rose in sectors such as manufactured goods, energy and electricity, and basic commodities, including food.
Surprisingly, crude petroleum and natural gas inflation eased only slightly to 69.07% in April and the price pressure in the energy and power sector – including petrol, diesel and LPG – jumped from 34.52% in the previous month to 38.66%.
WPI food inflation rose to 8.35% in April from 8.06% in the previous month. Interestingly, wheat inflation, whose exports were banned on Saturday, fell to 10.7% in April from 14.04% in March when heatwave hit first crop yields.
In the manufactured goods category, edible oil, which is mostly imported, declined to 16.06% in March in the wake of the Ukraine crisis, but inflation remained high at 15.05%. Basic metals, semi-finished steel, chemicals and textiles have seen double-digit inflation, reflecting an increase in input prices.
ICRA’s Nair expects the repo rate to rise to 5.5% by mid-2023. “The source of inflation is not the problem of global supply and domestic demand. We maintain our view that additional tightening will reduce new recovery without having a consistent effect on the source of inflationary pressures,” he added.
Bank of Baroda chief economist Madan Sabnavis said 12 of the 22 commodity indices rose sharply in April compared to the previous month, led by paper products, manufactured metals, other manufacturing items, electrical equipment and other non-metals. Mineral products. Significantly, the pace of international commodity price growth slowed significantly to 1% in April and 4% in March; It has soared further by 1.3% in May so far.