Wholesale Inflation Reaches 11-Month Peak at 2.13%; Crude Oil Surge Could Drive WPI Higher
Wholesale price inflation in India surged to 2.13% in February, marking the highest rate in nearly a year. This increase is attributed to rising costs in both food and non-food sectors, despite a slight decline in vegetable prices. The data, released on Monday, indicates that this is the fourth consecutive month of rising wholesale inflation, raising concerns about ongoing cost pressures in the economy.
Inflation Trends and Key Drivers
The wholesale price index (WPI) has shown a steady increase, rising from 1.81% in January to 2.13% in February. This time last year, the WPI was at 2.45%. The inflation rate for food articles climbed to 2.19% in February, up from 1.55% in January. While vegetable inflation saw a decrease from 6.78% to 4.73%, other food items such as pulses, potatoes, and eggs experienced higher inflation rates. The Ministry of Industry attributed the overall inflation increase to rising prices in manufacturing, basic metals, non-food articles, and textiles.
Fuel and Power Sector Insights
In the fuel and power category, deflation narrowed to 3.78% in February, compared to 4.01% in January. The average global crude oil price rose to USD 68 per barrel in February, up from USD 63 in January. Economists warn that if crude oil prices remain high, wholesale inflation could continue to rise, particularly affecting sectors like fertilizers and aluminum. Barclays noted that the impact of increased crude prices due to geopolitical tensions in the Middle East would likely be reflected in wholesale inflation figures.
Future Projections and Economic Implications
Looking ahead, India Ratings and Research cautioned that the ongoing rise in crude oil prices, especially following the US-Iran conflict, could lead to higher wholesale inflation from March onward. The average price of the Indian crude basket has already reached a 44-month high of USD 101.25 per barrel. Ind-Ra’s Chief Economist, Devendra Pant, indicated that while retail prices for petroleum products may remain stable for now, the increase in crude oil prices will likely push wholesale inflation higher, with projections suggesting a rise to 3.7% in March.
Manufactured Products and Retail Inflation
According to WPI data, inflation for manufactured products increased slightly to 2.92% in February, up from 2.86% in January. Non-food articles saw a significant rise in inflation, jumping to 8.80% from 7.58%. In a separate report, retail inflation also rose to 3.2% in February, compared to 2.75% in January. The Reserve Bank of India, which focuses on retail inflation for policy decisions, has reduced benchmark interest rates by 1.25 percentage points this fiscal year as price pressures have remained manageable. PHDCCI President Rajeev Juneja emphasized the need for continued policy efforts to enhance supply-chain efficiency and support domestic manufacturing to mitigate cost pressures amid global uncertainties.
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