April WPI at 11-year high, further increase seen in May

India’s wholesale price inflation hardened to an almost 11-year high in April on a low base and a spike in prices of basic metals, fuel and power, reflecting strong cost-push pressures.

Data released by the commerce ministry on Monday showed wholesale price index (WPI) based inflation firming up to 10.49% in April from 7.39% in March as food inflation increased to 4.92%. Inflation in fuel and manufacturing items also rose to 20.94% and 9.01%, respectively last month.

“The annual rate of inflation in April 2021 is high primarily because of rise in prices of crude petroleum, mineral oils viz petrol, diesel etc, and manufactured products as compared to the corresponding month of the previous year,” the ministry said in a release.

WPI in April 2020 was -1.57%.

The WPI inflation in primary food articles rose to a six month high 4.9% in April 2021, driven by fruits, non-vegetarian protein items and items such as tea.

“The WPI inflation delivered a negative surprise for yet another month, hardening to a sharper-than-anticipated series-high 10.5% in April 2021,” said Aditi Nayar, chief economist, ICRA, who attributed the increase to a weakening Rupee as well.

Retail inflation, however, had eased to a three-month low of 4.29% in April.

“We see the April moderation in retail inflation as temporary, as there is limit to how low perishables can go, fuel prices have started to rise, and non-perishables remain elevated,” said Rahul Bajoria, Chief India Economist, Barclays, pegging the CPI in May to rise to 5.4%.

Wholesale inflation in paddy, cereals, wheat, onion and pulses fell in April, according to the data.

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Economists expect a further rise in WPI going ahead especially with a growing divergence in terms of the global optimism related to the vaccine rollout, which is pushing up commodity prices and the weaker domestic sentiment that is engendered by the continuing impact of the second wave of Covid-19 infections in India.

“We expect the headline WPI inflation to rise further to 13-13.5% in the current month before commencing a downtrend, whereas the core-WPI inflation may continue to rise over the next three prints to a peak of around 10.5%,” Nayar said, adding that there is no space for rate cuts to support the faltering growth momentum and the monetary stance is expected to remain accommodative.

As per Bajoria, with the summer season likely to add to upward food price momentum, WPI could peak in May before moderating thereafter.



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