4 min readNew DelhiMay 18, 2022 06:30 AM IST
First published on: May 17, 2022 at 12:17 PM IST
THE INFLATION rate based on Wholesale Price Index (WPI) surged to a record high of 15.1 per cent in April, with the rise in prices of vegetables, fruits, milk, manufacturing, fuel and power, according to data released by the Ministry of Commerce and Industry on Tuesday.
This is the highest WPI print in the 2011-12 series. Annual WPI inflation — inflation at the producer level — has remained in double digits for 13 months in a row, consistently edging upwards.
According to data released last week, inflation at the retail level also surged to an eight-year high of 7.79 per cent in April, with expectations now rising for another repo rate hike by the RBI in June of as much as 40 basis points.
The heatwave this summer has led to a spike in prices of perishables such as fruits, vegetables and milk, which along with a spike in tea prices pushed up primary food inflation.
Inflation for manufactured products rose to 10.85 per cent in April mainly contributed by basic metals, chemicals and chemical products, textiles, machinery and equipment, and electrical equipment. Fuel inflation rose to 38.66 per cent, led by high inflation in major categories of petrol, diesel, LPG and aviation turbine fuel. Crude petroleum and natural gas recorded inflation of 69.07 per cent in April.
The core-WPI inflation — the non-food, non-fuel component — rose to a four-month high of 11.1 per cent in April, with producers forced to pass on the input price pressures. Inflation in food articles was 8.35 per cent as prices of vegetables (23.24 per cent), wheat (10.70 per cent), fruits (10.89 per cent) and potato (19.84 per cent) recorded a sharp spike over the year-ago period.
ExplainedThe big worry
Much of the inflation spike is being seen as a result of the Russia-Ukraine conflict. But the big worry for policymakers is the trend of retail inflation converging towards WPI-based inflation — in deviation from the usual trend of wholesale price inflation collapsing in the direction of retail price rise.
“The high rate of inflation in April 2022 was primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, food articles, non-food articles, food products and chemicals & chemical products, etc., as compared to the corresponding month of the previous year,” the Ministry said in a statement. The Government has begun data collection work for a new series of WPI with the base year 2017-18, it said.
According to experts, the Russia-Ukraine conflict has aggravated the situation.
“As the cost pressure of manufacturers is rising due to the rising input and transportation/ logistics costs, they are increasingly passing on these into their output prices leading to higher inflation in manufactured products. Though this trend started well before the Russia-Ukraine conflict, it has got aggravated due to further spike in input cost especially of crude oil and raw materials,” Sunil Kumar Sinha, Principal Economist, India Ratings and Research said.
“As the conflict does not seem to be coming to an end soon the headwinds arising out of the disruption in global supply chain coupled with uncertainty will continue to put pressure on domestic wholesale inflation,” Sinha said.
Experts now see the RBI going for a rate hike of as much as 40 basis points in the upcoming policy meet on June 6-8. “We expect a 40 bps hike in June 2022 followed by a 35 bps rise in August 2022, amidst a terminal rate of 5.5 per cent to be reached by mid-2023,” Aditi Nayar, Chief Economist, ICRA, said.
“With the source of inflation being global supply issues and not exuberant domestic demand, we maintain our view that overtightening will douse the fledgling recovery without having a commensurate impact on the origins of inflationary pressures,” she said.
India Ratings expects monetary tightening to continue and expects repo rate to increase by another 75 basis points and CRR by 50 basis points in FY23.
On May 4, after an unscheduled meeting of its Monetary Policy Committee, the RBI raised the repo rate by 40 basis points to 4.40 per cent and the CRR by 50 basis points to 4.50 per cent. RBI Governor Shaktikanta Das said this was aimed at reining in elevated inflation amid global turbulence in the wake of the Russia-Ukraine war.
People shop at a crowded wholesale vegetable market in the old quarters of Delhi. (REUTERS/File photo) 
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