WPI likely to remain elevated in the following months due to rising global commodity prices, low base effect
CARE Ratings has scaled up India’s wholesale inflation for April 2021 to 10.5 per cent as against 7.4 per cent in March 2021 and (-)1.6 per cent in April 2020. This growth in the wholesale price inflation (WPI) has been the highest since 2012.
The ratings agency had initially estimated WPI at 8.3 per cent for the month, and noted that the record inflation can be ascribed to rising fuel and power prices which have shot up to a 49-month high, persistent inflationary pressures in the manufacturing segment and a low base effect.
Wholesale inflation in primary articles (weightage of 22.62 per cent in the WPI basket) rose sharply to 10.2 per cent in April 2021, higher than 6.4 per cent in March 2021. This component had recorded a deflation of 1.1 per cent in April 2020.
The inflation in the food group was at 4.9 per cent in April 2021 compared with 3.2 per cent in the previous month and 3.8 per cent in the corresponding month last year.
Prices of cereals have fallen for the 9th consecutive month. However, the deflation in this component has moderated to 3.3 per cent in April 2021 compared with 4 per cent in the previous month.
Prices of pulses have eased to 10.7 per cent in April 2021 compared with 13.1 per cent in the previous month. However, this component has been witnessing double-digit inflation consistently over the past three months.
Vegetable prices have fallen for the fifth consecutive month recording a negative growth of 9 per cent in April 2021 compared with growth of 3.1 per cent in April 2020.
Onion prices have recorded a notable fall to -19.7 per cent in April 2021 after witnessing inflation during the previous two months. The onion prices have eased with fresh arrivals of onions hitting the wholesale markets.
Deflation in potato prices continues for the fourth consecutive month with negative growth of -30.4 per cent compared with 62 per cent inflation in the corresponding month last year. Deflation in potato prices can be attributed to robust production and supply outpacing demand.
Favourable weather conditions and strong production has aided the lower prices of both onions and potatoes during the month.
Non-food articles witnessed a double-digit inflation of 15.6 per cent in April 2021 compared with 11.8 in March 2021 and deflation of 3 per cent in the corresponding month last year.
In April 2021, inflation in fuel and power (weightage of 13.15 per cent in the WPI basket) registered a notable jump to 20.9 per cent compared with 10.3 per cent in the previous month and -12.7 per cent in April 2020. Inflation in this segment can be ascribed to the rigidity in international crude oil prices on account of bright prospects for global oil demand outlook and a low base effect.
The inflation in the manufactured products (weightage of 64.23 per cent in the WPI basket) rose to 9 per cent in April 2021, higher than 7.3 per cent in the previous month and subdued inflation of 0.2 per cent in the corresponding month last year. The sustained inflationary pressures in this segment are on the back of rallying global metal prices and strengthening pricing power of manufacturers.
All 14 industries have recorded a positive WPI inflation growth with double-digit inflation witnesses in basic metals (19.3 per cent), rubber & plastics products (13.1 per cent), food products (12.6 per cent), paper and paper products (10.7 per cent) and chemical & chemical products (10.2 per cent).
Inflation in food products inched up to 12.6 per cent in April 2021 from 9 per cent in March 2021 mainly on account of a considerable uptick in prices of vegetable and animal oils and fats.
Prices of leather and related products picked up with 0.5 per cent inflation recorded in April 2021 after witnessing deflation during previous two months.
Higher prices of mild steel-semi finished steel have been driving up prices of basic metals (19.3 per cent in April 2021).
WPI will remain elevated in the months to come for two reasons: rising global commodity prices and low base effect. This may sound good for corporates who could be regaining some purchasing power, said CARE Ratings.