Economy

Wholesale inflation jumps to over 8-year high to 7.4% in March

Our Bureau. New Delhi | Updated on April 15, 2021

The sharp rise is attributed to crude oil and metal prices

Producers’ inflation, popularly known as Wholesale Inflation, surged to over 8 years high of 7.4 per cent in March, over 3 percentage points more than February.  

On Monday, National Statistical Office (NSO) had released data for Consumer Price Index (CPI) which showed rate of retail inflation jumped to four months high of 5.52 per cent. Though, retail inflation data is primarily used in monetary policy decisions, increase in WPI will also impact policy review. With, both the inflation indices at high, any possibility of interest rate going down will be very unlikely. Earlier this month, RBI Governor led Monetary Policy Committee decided to keep policy rate unchanged and likely to continue with when it will meet again in June. 

According to a release issued by the Commerce & Industry Ministry, wholesale inflation based on Wholesale Price Index (WPI) registered surge mainly on account of higher fuel and metal prices. Also, the low base of March last year, when the data was computed with a low response rate due to the nationwide lockdown, contributed to a spike in inflation in March 2021. 

“The prices of crude oil, petroleum products and basic metal substantially increased in March 2021 as compared to the corresponding month of last year. Also, due to nationwide lockdown, the WPI index for the month of March 2020 (120.4) was computed with relatively low response rate,” the statement said. Inflation in the fuel and power basket was 10.25 per cent in March, against 0.58 per cent in February, mainly on account of rising prices of petrol and diesel. 

Inflation in food articles in March was 3.24 per cent as prices of pulses, fruits and paddy hardened. In vegetables, the rate of price rise was (-) 5.19 per cent, compared to (-) 2.90 per cent in the previous month. Inflation in pulses was 13.14 per cent in March, while in fruits it was 16.33 per cent. 

Aditi Nayar, Chief Economist with ICRA, expects the headline and core WPI inflation to rise further over the next two months, peaking at around 11.0-11.5 per cent and 8-8.5 per cent, respectively in May 2021. “The expected trajectory of the WPI inflation, and its partial transmission into the CPI inflation going ahead, supports our view that there is negligible space for rate cuts to support growth, in spite of the growing uncertainty related to the surge in Covid-19 cases, localised restrictions and emerging concerns regarding migrants returning to the hinterland,” she said. 

 

 

Published on April 15, 2021

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