Photo used for representation purpose only. A surge in cereal prices at a 12-month high enabled wholesale price inflation rise to a three-month high in March
| Photo Credit: Sushil Kumar Verma

India’s wholesale price inflation rose to a three-month high of 0.53% in March from 0.2% in February, with the food index rising 4.65%, primarily led by cereals prices surging at a 12-month high pace even as the inflation in paddy (11.7%), potato (53%) and onions (57%) accelerated.

Inflation in pulses and vegetables remained elevated at the wholesale level, at 17.2% and 19.5%, respectively, as per the Wholesale Price Index (WPI). Fuel and power as well as manufactured products continued to be in deflation mode, though the level of price declines from a year ago moderated to about 0.8% in March.

On a month-on-month basis, the WPI rose 0.4% — the first such uptick in four months, with the food index up 1.01% and primary articles rising 0.9%. Manufactured products and fuel and power categories were up 0.21% and 0.06%, respectively. The Commerce and Industry Ministry also revised the WPI for January 2024, raising the inflation rate for that month to 0.33% from 0.27% estimated earlier.

Within food articles, there was some relief at the wholesale level from eggs, meat and fish, whose prices slid 1.86%. This is in contrast to retail prices which rose more than 10% for eggs, and over 6% for meat and fish, last month. Milk inflation eased to 4.7% in March, from 5.5% in February, but wheat price rise almost trebled from 2.34% in February to 7.43% last month.

“Positive rate of inflation in March, 2024 is primarily due to increase in prices of food articles, electricity, crude petroleum & natural gas, machinery & equipment and other manufacturing, etc.” the ministry said in a statement.

For the full year 2023-24, wholesale prices remained in deflationary mode, averaging -0.7%, the lowest pace of price rise since 2015-16, said Sunil Kumar Sinha, senior director and principal economist and Paras Jasrai, senior analyst at India Ratings and Research. “While wholesale inflation in the fourth quarter averaged a one-year high of 0.4%, it was still good enough to provide succor to the corporates by keeping the input prices at moderate levels,” they noted. 

However, with the flare up between Iran and Israel, and the rise in crude oil prices beyond $90 a barrel, the firm expects the first quarter of 2024-25 to see an average rise of 2.4% in wholesale prices.

“International commodity prices are showing signs of increased pressure. Going ahead, continued escalation in international crude oil prices, heat wave conditions impacting electricity demand and vegetable inflation, remain key causes of concern,” said Bank of Baroda economist Sonal Badhan.

Oil pump jack is seen in front of displayed Israeli flag in this illustration taken, October 8, 2023.
| Photo Credit: Reuters

A protracted Israel-Hamas conflict could spur oil prices beyond India’s comfort zone and even if the government holds retail fuel prices ahead of critical elections, wholesale prices may spike and a higher import bill could pressure the rupee, according to experts.

Brent crude oil prices rose over 3% on Monday, crossing $87 a barrel even as equity markets around the world, including India, came under pressure as investors turned risk-averse and rushed to safe haven assets like gold.

Fears of a wider conflict between Israel and Hamas not only pulled down the NSE Nifty 0.72% or 141.2 points to 19,512.4, but also dragged trading volumes on the NSE to “the lowest in many weeks”, said Deepak Jasani, head of retail research at HDFC Securities.

Broad market indices fell more than the Nifty even as the advance-decline ratio fell sharply to 0.28:1, he added, stressing that the conflict is the latest negative trigger for markets that are already fretting about macroeconomic uncertainties in Europe and China, hawkish central banks and rising oil prices.

Also read: Israel-Palestine conflict LIVE updates on October 9

Beyond the short-term effect on markets, Bank of Baroda chief economist Madan Sabnavis said that if the war persists for even a fortnight or more, the oil dynamics will change. Crude oil prices going beyond $90 a barrel would pose trouble for the world economy as well as India.

“Iran joining the fray can affect the sea routes and push up transport and insurance costs. Higher crude prices will distort our balance of trade and current account deficit, thus putting pressure on the rupee,” Mr. Sabnavis noted.

For the government, there could be fiscal implications. With elections looming in several States and for the Lok Sabha in 2024, raising fuel prices may be an unlikely option, but higher costs will have to be absorbed either by oil marketing firms or the exchequer.

“Retail inflation can still be controlled by the government if it chooses to keep fuel prices unchanged. But wholesale price inflation will increase for sure. Some airlines have already increased fares after ATF price hikes, which is also inflationary,” the economist said.

Export earnings could also be hit as Israel buys around $5.5-6 billion of refined petroleum products a year from India.

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New Delhi:

Wholesale price-based inflation remained in the negative territory for the fifth straight month in August at (-)0.52 per cent, but prices of food articles and fuel showed an uptick.

The wholesale price index (WPI) based inflation rate has been in the negative since April and was (-)1.36 per cent in July. In August last year it was 12.48 per cent.

Inflation in food articles remained in double digit at 10.60 per cent in August, lower than 14.25 per cent in July.

“The negative rate of inflation in August 2023 is primarily due to fall in prices of mineral oils, basic metals, chemical & chemical products, textiles and food products as compared to the corresponding month of previous year,” the commerce and industry ministry said on Thursday.

Fuel and power basket inflation was at (-)6.03 per cent in August, against (-) 12.79 per cent in July.

In manufactured products, inflation rate was (-)2.37 per cent, as against (-)2.51 per cent in July.

The RBI last month kept key interest rate unchanged at 6.5 per cent for the third straight meeting but signalled tighter policy if food prices drive inflation higher.

The central bank takes into account retail or consumer price index based inflation for formulating monetary policy. Retail inflation data for August came in at 6.83 per cent in August, lower than 7.44 per cent in July.