Wholesale inflation surged to double digit at 10.5 per cent in April. This is quiet contrary to retail inflation which dropped to 4.29 per cent in April, which is three months low. Experts feel that with latest number, possibility of any interest rate cut by Monetary Policy Committee (MPC) has waned further.
Wholesale rate of inflation was 7.39 per cent in March and negative 1.57 per cent in April last year.
“The annual rate of inflation in April 2021 is high primarily because of rise in prices of crude petroleum, mineral oils viz petrol, diesel etc, and manufactured products as compared to the corresponding month of the previous year,” a statement by the Commerce & Industry Ministry said on Monday. Wholesale inflation, based on Wholesale Price Index (WPI), is also known as factory or producers’ inflation. It shows prices of products from supply side. At the same time, retail inflation, based on Consumer’s Price Index (CPI), shows inflation from demand side. Major policy decisions are taken on the basis of retail inflation.
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Another reason for surge in WPI is base effect as it was negative during corresponding month of last fiscal.
According to Aditi Nayar, Chief Economist with ICRA, with a sharp month-on-month jump of 1.4 per cent, the core-WPI inflation (derived by excluding volatile items such as food and fuel from headline number) increased to a fresh series-high 8.4 per cent on a YoY basis in April 2021, driven by metals, paper, rubber, chemicals etc., the global prices of many have surged with the optimism generated by the Covid-19 vaccines’ rollout, while landed costs were pushed up by the depreciation in the rupee.
The inflation for crude petroleum and natural gas, and mineral oils soared to 80 per cent and 45 per cent, respectively, in April this year mainly because of low base last fiscal.
“We expect the headline WPI inflation to rise further to 13-13.5 per cent in the current month before commencing a downtrend, whereas the core-WPI inflation may continue to rise over the next three prints to a peak of around 10.5 per cent,” Nayar said while adding that there is no space for rate cuts to support the faltering growth momentum, even as expectation is that monetary stance to remain accommodative.