Inflation measured by wholesale price index (WPI) shot up to 7.39% in March 2021, the highest rate since October 2012, primarily on higher prices of crude oil, but also aided by a low base. Rise in prices of some manufactured goods and food items like pulses and fruits also pushed the index.
Retail (CPI) inflation scaled a four-month peak of 5.52% in March 2021. Rising inflation could dissuade RBI-MPC from opting for rate cuts, even as chances of another economic disruption have increased due to Covid surge.
Most experts say the numbers are worrisome and can dent the economic recovery going ahead. The recent economic data, especially the inflation trajectory, has been a cause for concern for experts. The spike in inflation comes on the back of a steady rise in crude oil prices at the global level, which have fed into a rise in the auto fuel pump prices in India.
Given continued supply disruptions and international commodities continuing to rise, economists expect core WPI inflation to remain elevated over the medium-term. Approaching summer, elevated core inflation and surging fuel prices remain key risks for inflation over the medium-term. While part of the current surge in prices could be due to supply disruptions that could reverse, the RBI’s Monetary Policy Committee will likely remain cautious and stay on the sidelines throughout the 2021.
In a note, ratings agency ICRA said, “Looking ahead, we expect large uptick in the WPI inflation over the next three months, as the wedge between the commodity prices and their year-ago level intensifies. We expect the headline and core WPI inflation to rise to around 6 per cent each in March 2021. Subsequently, we expect the headline WPI inflation to harden further to between 9-9.5 per cent, and the core-WPI inflation to climb to 7-7.5 per cent by May 2021, before displaying a more gradual moderation to 4 per cent each by the end of 2021.”