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The producers’ rate of inflation has come down to 1 per cent in March.
Since the Covid-induced lockdown affected the markets during most part of March, producers were not able to sell their produce. Also, higher supply affected the prices of most manufactured products, barring food items and fuel. All these impacted the producers’ rate of inflation, as indicated by the change in the Wholesale Price Index (WPI). It stood at 1 per cent as against 2.26 per cent in February and 3.10 per cent during March last year.
Now, both the inflation numbers are down. Rate of retail inflation, released last week, slipped to 5.9 per cent in March as against 6.58 per cent in February. With slippage of both rates and considering the need in view of the pandemic spread, the expectation is that the Monetary Policy Committee will further slash the policy rate. Last month, this rate was lowered by 75 basis points (100 basis points is one percentage point). Experts feel that the next meeting will see a rate cut by at least 50 basis points.
Disinflation expectation
Commenting on the latest WPI number, Aditi Nayar, Principal Economist at ICRA, said rate of inflation is on the higher side as expectation was a disinflation of 0.6 per cent. This divergence appears to have been led by minerals, crude oil and natural gas, with the index levels not fully reflecting the plunge in commodity prices that has taken place in the aftermath of the Covid-19 outbreak.
The inflation for food and core items in March 2020 is largely in line with forecasts. For April 2020, while food inflation may see an uptick, the lagged correction in prices of various commodities would push the WPI into disinflation.
“At present, we expect the WPI to record a disinflation of 1.5 per cent in FY 2021, in contrast to the mild inflation of 1.7 per cent in FY 2020,” she said.
WPI is derived on the basis of movement of prices of various goods categorised in three groups — Primary Articles (weight 22.62 per cent), Fuel and Power (13.51 per cent) and Manufactured Products (64.23 per cent). Primary articles comprise mainly food articles. Rate of inflation for these three groups stood at 3.72 per cent, (-) 1.76 per cent and 0.34 per cent respectively in March.
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