Wholesale Price Index (WPI)-based inflation hardened to a 13-month high of 1.26 per cent in April 2024 from a level of 0.5 per cent in March 2024, official data released on Tuesday showed. 

This spike was due to both food and fuel inflation. In April last year, WPI inflation stood at (-) 0.8 per cent. 

Although WPI would not be relevant from the point of view of Monetary Policy Committee (MPC) decision, it does reflect about pricing power of companies, said economists.  The Reserve Bank of India mainly takes into account retail inflation while framing the monetary policy.

The uptick of 80 basis points in the year-on-year WPI print in April relative to March 2024 was driven by fuel and power (29 basis points, amid base effect), followed by WPI-food (+ 24 bps, seasonal rise in vegetables and fruits) and the core WPI items (+24 bps), which outweighed the slight dip in minerals (-3 bps).

Food inflation

The WPI-food inflation (primary food articles and manufactured food items) rose for the third consecutive month, to an eight- month high of 5.5 per cent in April (0.4 per cent in April 2023) from 4.6 per cent in March 2024, led by both manufactured food products (15-month high of 1.2 per cent) and primary food articles (four-month high of 7.7 per cent).

Fuel, food and core items contributed to the uptick in WPI inflation in April, said an ICRA research note.

ICRA projects the WPI inflation to rise to 2-3 per cent in May 2024. Thereafter, the WPI inflation is likely to increase further and peak in June 2024, impacted by a widening of the adverse base (-4.2 per cent in June 2023), before witnessing an optical moderation over the next two months. 

Rajani Sinha, Chief Economist, CareEdge Ratings, said, “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.

“Having said that the outlook for food inflation has brightened due to anticipations of a normal monsoon, which is expected to bolster agricultural production. However, monitoring the monsoon’s temporal and spatial distribution is critical. We expect WPI inflation to average around 3 per cent in FY25.”

Demand revival

Sonal Badhan, Economist, Bank of Baroda, highlighted in a note that commodity prices have seen a revival on hopes of increased demand from China. Going forward, ‘higher for longer’ rate scenario in the US, and demand revival in China will drive the international commodity prices. “Domestically, heat wave conditions will decide the trajectory of food inflation. The ongoing heat wave conditions in most parts of the country pose a threat to vegetable inflation going forward,” Badhan added.

India’s retail inflation (consumer price index-based inflation) eased to a 11-month low in April 2024 at 4.83 per cent year-on-year as against 4.85 per cent in the previous month, official data released on Monday showed.