Wholesale inflation spikes in April, rains may cool prices

New Delhi: India's wholesale inflation rose to a 13-month high at 1.26% in April due to an increase in the prices of food, fuel and primary articles, according to the ministry of commerce and industry on Tuesday.

The Wholesale Price Index, a proxy for producers' prices, had risen to 0.86% in December, accelerating from 0.39% in November, before falling to 0.33% and 0.20% in January and February.

The WPI stood at 0.53% in March and -0.79% a year ago, remaining in the positive territory for the sixth consecutive month.

The April figure outpaced economists' expectation of a 1% rise, according to a Reuters poll.

Wholesale inflation remained in the negative territory between April and October last year due to a fall in the prices of chemicals and chemical products, electricity, textiles, basic metals, food products, paper and paper products.

Wholesale inflation entered the positive territory for the first time in seven months back in November and has remained there since then.

“While manufactured products continued in deflation, albeit at a slower pace compared to last month, segments like wholesale food prices and fuel and power remained in positive territory. Wholesale inflation of fuel and power entered positive territory after 11 months in April,” said Rajani Sinha, chief economist at CARE Ratings, adding that she expects wholesale inflation to average around 3% in FY25.

“Going ahead, the base effect will remain adverse over the next two months, thereby resulting in higher WPI inflation. External risks emerging from ongoing geopolitical tensions also need to be monitored, given the risk they can pose to supply chains,” Sinha added.

However, expectations of a normal monsoon and a recovery in Rabi sowing have given hopes of a better agricultural output.

Rise in food prices

Food inflation rose to 7.74% in April, up from 6.88% in March and 6.95% in February due to the rise in prices of vegetables, eggs, fish and meat, paddy, potato, onions and fruits.

However, the prices of other foods like pulses and milk declined during the month.

During April, prices of non-food articles declined 4.41%, fuel and power prices rose 1.38%, while crude petroleum and natural gas prices accelerated by 4.97%.

Prices of manufactured products declined 0.42% during the month.

Going ahead food inflation is expected to moderate by September/October, as many of the kharif crops will be entering the mandis and supplementing existing supply, said Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry.

India's consumer price, or retail, inflation eased slightly to 4.83% in April, down from 4.85% in March, mainly due to falling fuel prices. However, overall food inflation remained elevated, though retail inflation was lower on vegetables, pulses, sugar and spices in April, as compared with the previous month.

Consumer price inflation remains above the central bank’s target of 4% but has stayed within its tolerance range of 2-6% for the eighth consecutive month.

Earlier in April, the Reserve Bank India (RBI) left the policy rate/repo rate unchanged at 6.5%, signalling that interest rate cuts may take some more time.

The monetary policy committee of the RBI continued its prolonged pause in the key repo rate pursuing durable signs of easing inflation amid volatile food prices.

Regulating interest rates is a key instrument for the central bank to control inflation.

A higher interest rate regime makes borrowing costs more expensive, which can reduce demand among banks, other financial institutions and even the general public to borrow money.

Reducing the supply of money in the market can also bring down consumer spending.

Also Read | Retail inflation eases slightly in April, food inflation rises