India’s WPI Inflation Surges To Eight-Year High In March

An employee uses a press punch to cut lock components at a factory in the Tala Nagri Industrial Area of Aligarh. (Photographer: Udit Kulshrestha/Bloomberg)

India's wholesale inflation in March rose to the highest in eight years, led by higher prices across commodities.

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 Thursday. On a month-on-month basis, the index rose 1.6% in March 2021 compared to February 2021.

The prices of crude oil, petroleum products and basic metal were substantially higher in March 2021 as compared to a year ago. This fed into prices of manufactured goods, which rose 7.34% compared to a year ago — the highest reading in the series.

Data for the month of March 2021 is computed on a base of imputed data from March 2020, the release said.

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

Inflation Internals

In March, primary articles inflation stood at 6.4% against 1.82% in February. On a month-on-month basis, primary articles inflation rose by 0.55%.
Prices of food articles rose 3.24% over a year ago compared with 1.36% in the previous month. They contracted by 0.4% on a sequential basis.
Non-food articles inflation rose to 11.78% against 3.95% last month and rose by 1.9% on a month-on-month basis.
Fuel and power index rose by 10.25% against a contraction of 0.58% in the preceding month. On a sequential basis, the index rose 5.3%.
Manufactured products inflation rose by 7.34% in March after a rise of 5.81% in February. On a month-on-month basis, the index rose 1.3% in March.

Feed Through Into Retail Inflation?

The rise in wholesale inflation may signal higher retail prices as well. Retail inflation has already climbed to 5.52% in March as fuel and transportation costs increased alongside some categories within the food basket.

Purchasing Managers' Index surveys have shown that while inputs costs are rising, manufacturers are yet to pass on the impact fully to end products. Should this pass-through accelerate, retail inflation may rise too. The recent rise in Covid-19 cases and concerns over demand conditions, however, may keep the transmission incomplete.

“We expect the headline and core WPI inflation to rise further over the next two months, peaking at around 11.0-11.5% and 8-8.5%, 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,” said Aditi Nayar, chief economist at ICRA Ltd.