Wholesale Inflation Now At A Record Eight-Year High

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Inflation based on the wholesale price index (WPI) accelerated last month to a record 7.4%, a surge that is expected to feed into higher retail prices in the near term. While the Consumer Price Index-based retail inflation — the more widely tracked policy tool — looks at the price at which the consumer buys goods, the WPI tracks prices at the wholesale, or factory gate/mandi levels. WPI pertains to only goods, not services.

Inflation, as measured by the wholesale price index, rose to 7.39% in March 2021—the highest since March 2013—from 4.17% in the previous month, according to data released by the Ministry of Commerce and Industry. On a month-on-month basis, the index rose 1.6% in March 2021 compared to February 2021. The March inflation rates of primary articles (6.40 percent), fuel (10.25 percent), manufactured products (7.34 percent), and food (5.2 percent) are at a higher side compared to the figures of February and January 2021.

Adverse base effects and strong sequential momentum drove WPI inflation higher, with sharp month-on-month price gains continuing in the fuel and manufacturing segments, which could become a cause for concern. We expect WPI inflation to continue to rise for a few more months, possibly reaching double digits the first time since September 2011 in May 2021, Rahul Bajoria, Chief India Economist, Barclays.

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“The near-term inflation outlook is not so rosy. With summer setting in, perishable products (especially vegetables) are likely to experience higher inflation, and the low base of last year will also have an adverse impact of wholesale inflation at least till August,” said Devendra Kumar Pant, chief economist, India Ratings & Research.

The WPI food index hardened to 5.28%, from 3.31% in February, despite vegetable and cereal prices easing as manufactured food inflation touched a 49-month high of 9%. Within manufactured food products, edible oils recorded 34.2% inflation in March.

Among manufactured products, mild steel prices recorded 14.5% inflation, in line with the rise in global metal prices, and fed into other basic metals’ inflation rate which touched 17%.

ICRA expects the headline and core WPI inflation to rise further over April and May, peaking at about 11.0-11.5% and 8-8.5%, respectively.

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