Home World Business WPI inflation down 0.85 percentage points in March

WPI inflation down 0.85 percentage points in March

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Food inflation in WPI terms rose to 3.2% in March from 2.7% in the previous month

Wholesale Price Index (WPI)-based inflation declined by 0.8 percentage points to 5.7 per cent in March against 6.5 per cent the previous month, even as the food component saw a rise. 


From July, the inflation trajectory will to a large extent be decided by the southwest monsoon and expectations built on that. India Meteorological Department will provide its first prediction of the monsoon for 2017 on Tuesday. Private weather forecaster Skymet had predicted slightly below-normal rain.  Some economists said inflation, particularly food, faced upside risks. This would force the Reserve Bank of India (RBI) to continue holding the repo rate (at which it lends to banks). 


The movement of WPI-based inflation was in contrast to that of Consumer Price Index-based inflation over the same period. Data released last week showed retail inflation at a five-month high of 3.81 per cent in March, on costlier food items. Food items have a weight of 45 per cent in the index; it is 14 per cent in   in terms rose to 3.2 per cent in March from 2.7 per cent the previous month. This was largely due to costlier vegetables, which rose 5.7 per cent, compared with deflation of eight per cent during this period. 


However, all vegetable prices did not move in the same direction. Potatoes saw a higher rate of decline at 17.1 per cent in March, against 8.8 per cent in the previous month. Onions also continued to see deflation, coming down to 10.8 per cent from 18.8 per cent. 


Wholesale inflation cooled in March despite deflation at 0.45 per cent a year ago, which should have exerted upward pressure on inflation this point of time. “The decline was accentuated by decline in fuel and power inflation and manufactured products. It may be noted that fuel prices were significantly cut on March 31, while the rupee has been appreciating since February,” State Bank of India group Chief Economic Advisor Soumya Kanti Ghosh said. 


Inflation in fuel and power fell to 18.2 per cent in March from 21 per cent in February. In manufactured products, it was down to almost 3 per cent from 3.7 per cent.   Principal Economist Aditi Nayar attributed the decline in inflation to the 1.8 per cent appreciation of the rupee against the dollar, among other things. 


CARE Ratings’ Chief Economist said, “We believe there is an upside risk to inflation, with global commodity prices increasing and expectation of below-normal monsoon. A clearer picture will emerge in July-August.” 


As the inflation trajectory of many food items is still unfolding and a lot will depend on the monsoon, the is likely to remain in an extended pause mode, said Sunil Kumar Sinha, principal economist with India Ratings.  Earlier this month, the had left its key policy rate unchanged at 6.25 per cent for a third review in a row, citing upside risk to inflation. It had, however, increased the reverse repo rate — which it pays to banks for parking funds with it — by 0.25 per cent to 6 per cent, narrowing the policy rate corridor. For 2017-18, it projected retail inflation to an average of 4.5 per cent in the first half and 5 per cent in the second. 


frames its monetary policy stance on the behaviour of retail inflation.

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