India’s WPI Inflation Hits 3.88% In March, A 3-Year High

The Wholesale Price Index (WPI) of inflation in India rose to a sharp 3.88% in March as compared to 2.1% in February.

This is the highest in more than three years, which is an indication of increasing price pressures in major sectors.

The retail inflation also increased to 3.4% in the month as compared to 3.2% in February, reflecting an expanded increase in the level of prices.

What Is Driving The Rise In Inflation?

Wholesale inflation was greatly contributed to by the rise in the prices of crude oil, power and manufactured goods.

The West Asia war caused supply shocks that pushed the cost of inputs in the industries upwards.

Prices of major industrial inputs rose drastically, such as sulphuric acid (77.2%), copper wire (21.9%), aluminium powder (15.8%), brass metal/sheet/coils and aluminium alloys (13.5%).

The price of crude petroleum shot up in March by more than 50%, reversing a downward trend in the last month and adding to the rising fuel prices.

How Did Key Segments Perform?

The fuel and power segment saw inflation turn positive at 1.1% in March, compared to deflation of 3.8% in February.

Manufactured products also saw a rise. Inflation came in at 3.4%, slightly higher than 2.9% in the previous month. This segment carries the most weight in the WPI basket.

Within manufacturing, price trends were mixed but mostly higher. Out of 22 subgroups, 16 reported an increase. Basic metals rose 4%. Textiles went up 4.9%. Food products edged up 1.8%, while chemical products increased 2.2%.

Primary articles inflation rose to 6.4% from 3.3%, reflecting increased price pressures in raw materials.

What Is Happening In Food Prices?

Food inflation remained relatively moderate, rising by 1.85% during the month.

Within major food categories, prices of cereals, pulses and wheat declined by 2.5%, 5.2% and 4.6%, respectively.

Vegetable prices, however, rose by 1.5% overall, although key items such as potatoes and onions recorded sharp declines of 27.9% and 42.1%, respectively.

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The Key Takeaway

The surging wholesale inflation is an indication of rising input prices for firms, especially those involved in production, metals and energy.

Firms enjoying high prices might be in a stronger position to absorb the increased costs, and there might be margin pressures in cost-sensitive industries.

Inflation rates are one of the most important factors that investors need to monitor since the long-term pressure on prices may affect interest rate expectations and the general sentiment of the market.

Sources:

The Economic Times

Reuters