WPI inflation cools to four-month low of 1% in March as food prices ease

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Wholesale price inflation eased to a four-month low of one percent in March on sharp fall in prices of food and fuel items as demand slowed.

The Wholesale Price Index (WPI) based inflation was 2.26 percent in February and 3.10 percent in March, 2019.

As per Commerce and Industry Ministry data, food inflation fell to 4.91 percent in March from 7.79 percent in the previous month.

Fuel and power basket witnessed deflation of 1.76 percent, while manufactured products witnessed inflation of 0.34 percent in March.

The government said, due to outbreak of coronavirus and national lockdown, the provisional figures of WPI for March are computed with low response rate. The figures are likely to be revised in a significant manner during release of final month, it said.

The WPI inflation in March is the lowest since November 2019 when it was 0.58 percent.

Inflation in vegetables fell sharply to 11.90 percent in March from a high of 29.97 percent in the previous month. Onion prices continued to rule high with inflation at 112.31 percent during March.

Pulses was the only item in the food articles category which saw rise in rate of inflation at 12.12 percent in March, from 11.42 percent in the previous month.

Data released earlier this week showed retail inflation, based on consumer price index, fell to four-month low of 5.91 percent in March from 6.58 percent in February. The Reserve Bank of India (RBI) takes into account retail inflation while formulating its monetary policy.

The RBI had last week said that its inflation outlook looks benign, with risks around inflation project being balanced. With softening of food prices, sharp fall in crude prices and normal monsoon, RBI expects inflation for current fiscal to be in the range of 3.6-3.8 percent.

It said the impact of Covid-19 on inflation is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions.

The nation-wide lockdown which started on March 25 would have had an impact on the data collection for the month and the inflation number for April is likely to be even lower.

ICRA Principal Economist Aditi Nayar said March WPI should have seen a deflation if the index levels fully reflected the plunge in prices of commodities like minerals, crude oil and natural gas, in the aftermath of the Covid-19 outbreak.

"For April 2020, while food inflation may undergo an uptick, the lagged correction in prices of various commodities would push the WPI into disinflation. At present, we expect the WPI to record a disinflation of 1.5 percent in FY 2021, in contrast to the mild inflation of 1.7 percent in FY 2020," Nayar said.