Wholesale price index-based inflation surged to an all-time high of 10.49% in April, thanks to a coffee base effect amid rising food and commodity prices. Build from pricing pressure amid supply chain disruptions against the second wave of the Covid-19 pandemic also contributed to the increase in inflation at the wholesale level. Going ahead, both wholesale and retail inflation is predicted to rise further. Retail inflation, which fell to a three-month low of 4.29 % in April from 5.52 % in March, is predicted to rise because the effect of wholesale inflation is skilled to consumers within the sort of higher prices.
The virus’s spread within the hinterland is predicted to cause further supply chain disruptions at the first mandi stage, dampening the multiplier effect of an honest harvest this year following a traditional monsoon forecast, increasing the spectre of high food inflation. The low base of April last year, when WPI inflation was (-) 1.57%, also led to the April 2021 increase. In March 2021, WPI inflation was 7.39 %.
According to economists, food inflation is at a six-month high of 4.9 %, and data suggests a greater effect of supply chain disruptions at the wholesale level. “Interestingly, the WPI-food index increased by 3.8% in April 2021, compared to a comparatively minor 1% rise within the CPI-food index, indicating a greater effect of supply chain disruptions at the wholesale level,” ICRA chief economist Aditi Nayar said.
Furthermore, the increase within the prices of commodities like minerals, edible oil, crude oil, coal, fertilizers, plastic, basic metals, electrical/electronic products, auto, and auto parts — which account for about 44% of the WPI — led to the increase in inflation.
“Because global commodity prices are largely skilled to domestic prices, an increase in global commodity prices has placed considerable pressure on headline wholesale inflation.” actually, the contribution of those products to headline wholesale inflation rose to 72.6 % in February-April 2021 from a negative 34.4% in September-November 2020, consistent with Sunil Kumar Sinha, the principal economist at India Ratings & Research.
In April, food inflation was 4.92 %, as prices for protein-rich products like eggs, poultry, and fish rose. In March 2021, inflation during this basket was 3.24%. This was driven by 10.88% inflation within the ‘egg, meat, and fish’ basket in April, 10.74% in pulses, and 27.43% in fruits. In April, inflation within the fuel and power basket was 20.94%, while it had been 9.01% in manufactured goods.
According to Nayar, headline WPI inflation is predicted to rise further to 13-13.5% within the current month before starting to fall, while core WPI inflation is predicted to rise further over the subsequent three points to a peak of around 10.5 %. Albeit the monetary policy is predicted to stay accommodative, this doesn’t leave much space for rate cuts from the Federal Reserve Bank of India (RBI). Consistent with Nayar, “growing divergence in terms of worldwide optimism associated with vaccine rollout” is additionally driving up commodity prices.
RBI Governor Shaktikanta Das said earlier this month, that manufacturing and services PMIs, also as increasing WPI inflation, indicate that input price pressures are persistent. Furthermore, the build up of input price pressures across industries, fuelled partially by elevated global commodity prices, remains a source of concern. “The Covid-19 measures on supply chains and logistics will form the inflation trajectory for the remainder of the year,” Das said.
