Home World Economy WPI cools to 5.7% in March, higher vegetable prices fuel food inflation

WPI cools to 5.7% in March, higher vegetable prices fuel food inflation

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NEW DELHI: India’s wholesale inflation eased to 5.70% in March from a three-year high of 6.55% in the previous month thanks to a slower increase in prices of fuel and in manufacturing sector, even as costlier vegetables pushed up food inflation during the month.

Food inflation firmed up to 3.12% in March from 2.69% in February, led by an inflation in vegetable prices that had been falling for the past six months. Wholesale price inflation had declined 0.45% in March last year, data released by the commerce and industry ministry on Monday showed.

“We believe that there is an upside risk to the inflation with the increasing global commodity prices and expectation of possible below-normal monsoon. A clearer picture will emerge in July-August,” said Madan Sabnavis, chief economist at CARE Ratings. Core wholesale inflation declined to 2.1% in March.

Last week, government data showed consumer inflation accelerating to a five-month high of 3.81% in March largely due to increased fuel prices. Wheat inflation subsided in view of the expected arrival of the new crop, but rice inflation inched up. Fuel and power inflation rose 18.16% in March from 21.02% in the previous month.

Wholesale price inflation in manufactured products, which has a 64.97% weightage in the index, increased to 2.99%, down from 3.66% in February. On Monday, the government revised the increase in Wholesale Price Index for January to 5.53% from 5.25% earlier.

OUTLOOK
Experts said that a warmer summer and uncertainty over monsoon rainfall may push up food inflation further in the coming months. “We expect food inflation to inch up in April, led by perishables, in line with rising temperatures. Going forward, monsoon dynamics will dictate the trend in food inflation, particularly for kharif crops,” said Aditi Nayar, principal economist at ICRA Limited.

ICRA expects WPI inflation to decline further in the April-June quarter before stabilising in subsequent months. It anticipates WPI inflation to average 4% in 2017-18, lower than Consumer Price Index inflation, which is expected to average around 4.5%. “WPI inflation will be in the 5% range in the next couple of months even though there is a favourable base effect which will exert downward pressure,” Sabnavis said.

Sunil Kumar Sinha, principal economist at India Ratings & Research, said that as the inflation trajectory of many food items is still unfolding and a lot will depend on the monsoon, the Reserve Bank of India is likely to remain in an extended pause mode. The RBI last week kept interest rates unchanged citing inflation risks.

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