April wholesale inflation reaches 10.49% as high fuel costs continue to hurt

Oil marketing companies (OMCs) hiked fuel prices across metropolitan cities on May 4

Wholesale inflation in the country reached a massive 10.49 percent in April as the constant rise in cost of fuel, including petrol, LPG and high speed diesel percolated down into the economy.

Measured by the Wholesale Price Index (WPI), wholesale inflation in India began FY22 with a major rise. It had already spiked in the previous month of March when it reached 7.39 percent, up from 4.17 per cent in February.

While it has been on a continuous uptick from December onwards when it was just 1.9 percent, the latest figures for wholesale inflation show how higher fuel prices and therefore transport costs, have led to costs spiking economywide in April.

The month saw fuel inflation shooting up by 21 percent, more than double of March's already high inflation of 10.2 percent. According to the WPI, after reducing for 11 straight months, overall fuel prices had risen by just 0.6 percent in February. But since that it has escalated quickly.

Case in point, petrol prices rose by 42.37 percent in April, compared to 18.4 percent in March, and just 0.8 percent in February. LPG prices soared to 20.34 percent in the latest month, up from 10.5 percent in March and just 0.5 percent in February.

Across the board rise

Also, prices of manufactured products, which have a combined weight of 65 per cent in the index, rose by a sharp 9.01 percent, up from March's 7.3 percent.

"The core-WPI inflation increased to a fresh series-high 8.4% on a YoY basis in April 2021, driven by metals, paper, rubber, chemicals etc., the global prices of many of which have surged with the optimism generated by the Covid-19 vaccines' rollout, while landed costs were pushed up by the depreciation in the Indian Rupee," Aditi Nayar, Chief Economist at ICRA said.

A continuing uptick in food inflation also contributed to the pace of inflation accelerating for the fourth-month in a row.

Nayar said the inflation for primary food articles was driven to a six month high of 4.9 percent in April due to prices of fruits, non-vegetarian protein items and items such as tea shooting up. She added that a sharp 3.8 percent month on month increase was seen suggesting a greater impact of supply chain disruptions at the wholesale level.

ICRA expects WPI inflation to rise further to 13-13.5 percent in May before commencing a downtrend.

Interestingly, retail inflation has eased in April. Figures released earlier this week showed the Consumer Price Index (CPI) -based inflation was 4.29 percent, the lowest in three months, compared with 5.52 percent in Marchand 5.03 percent in February.

Retail inflation has now stayed within the Reserve Bank of India's (RBI) medium term inflation target of 4(+/-2 per cent) for the fifth consecutive month.

WPI had less than 1/3rd weightage in the inflation target given to RBI, with the rest being CPI. As a result, the latest wholesale inflation figures are not expected to impact interest rates to a major extent.