WPI inflation hits 15.08% in Apr, in double-digits for 13th straight month

India’s wholesale price index (WPI)-based inflation rate rose to 15.08 per cent in April from 14.55 per cent in the preceding month on the back of rising commodity and vegetable prices. What makes the pickup more worrisome is that it comes despite a high base of 10.74 per cent inflation during the same month a year ago.

Wholesale price inflation rate is now in double digits for 13 consecutive months.

Data released by the industry department showed that vegetables’ inflation picked up in April to 23.24 per cent leading to a food inflation of 8.35 per cent. Fuel inflation rose to 38.66 per cent during the month while inflation for manufactured products increased to 10.85 per cent.

While the central bank is mandated to anchor retail inflation, rising wholesale price inflation may lead to higher retail inflation with a lag.

The data released by the National Statistical Office last week showed the retail inflation rate galloped to a 95-month high in April at 7.8 per cent, paving the way for more policy rate hikes by the central bank. In a surprise off-cycle monetary policy committee meeting earlier this month, the Reserve Bank of India (RBI) increased policy rates by 40 basis points, with inflation remaining above the central bank’s upper tolerance limit for four consecutive months. The RBI is expected to further increase policy rate in its June meeting to douse rising inflationary expectations.

The food inflation rate in April spiralled to 8.38 per cent as prices of edible oils and vegetables shot up by 17.3 per cent and 15.4 per cent, respectively. Fuel inflation also breached the double-digit mark at 10.8 per cent in April due to rising retail prices of petrol, diesel, and cooking gas even as crude oil prices softened from March.

Investment bank Mortan Stanley last week said said within Asia, India would be the economy which will be most exposed to upside risks to inflation. This is considering the higher energy import burden and sustained strength in domestic demand.

“Building on the impact of adverse terms of trade, we expect both inflation and the current account deficit to deteriorate. We expect broad-based price pressures, which will keep CPI inflation above the 6-per cent mark through October 2022, with average CPI expected to be 6.5 per for FY23. Similarly, reflecting the commodity price pressures, we expect the current account deficit to widen to a 10-year high of 3.3 per cent of GDP in FY23,” it added.

The investment bank expects front-loaded policy rate hikes by the central bank to preserve macro stability, with inflation concerns rising. The RBI raised the repo rate 40 basis points, to 4.4 per cent, in an off-schedule meeting last week.

“We expect front-loaded rate hikes and pencil in hikes of 50 bps each in the June and August meetings, to be followed by back-to-back rate hikes to take the policy rate to 6 per cent by December 2022. We expect the terminal policy rate to be 6.5 per cent,” it said.

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