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After remaining in the negative zone for 17 consecutive months, the Wholesale Price Index (WPI)-based inflation moved to positive territory at 0.34 per cent in April. WPI-based inflation had come in at (-) 0.85 per cent in March 2016 and (-) 2.43 per cent in April last year.
This has prompted several economists and economy watchers to virtually rule out any monetary easing by the RBI in the upcoming June review, especially after the retail inflation had recorded a higher-than-expected print last week.
The WPI turnaround was broad-based with positive inflation in vegetables at 2.21 per cent in April as compared to (-) 2.26 per cent in March.
While manufactured products – which account for 65 per cent of the WPI index – inched up to 0.71 per cent in April (-0.13 per cent in March), fuel inflation stood at (-)4.8 per cent per cent in April compared to -8.3 per cent in March).
April 2016 WPI inflation could be easily dubbed as “potaflation & sugflation” as potato and sugar prices both exhibited huge increase, said Soumya Kanti Ghosh, Chief Economic Advisor to SBI Group.
The worrying aspect is that past trends suggest whenever potato prices show an increase, they have remained sticky for a considerable period of time, Ghosh said in a research note.
“If this is the case, then we are in tough times. Earlier also, potato prices have shown similar trends and interestingly in 2012 during the same period, prices increased and the high prices persisted for 12 months,” he said.
“This time also we expect that the potato prices will increase further and may take at least six months to come back to original/normal levels. The rise in prices of sugar is worrying, though it was not entirely unexpected”.
In April 2016, wholesale sugar prices had surged 16.07 per cent, higher than (-) 8.76 per cent in same month last year. On the other hand, potato prices recorded 35.45 per cent increase in April, higher than (-) 41.05 per cent contraction witnessed in same month last year.
Pulses remain high Pulses – whose prices have remained untamed in the two-years of Modi government – saw 36.36 per cent increase in prices in April 2016, higher than 15.47 per cent increase in same month last year.
Ranen Banerjee, Leader Public Finance and Economics, PwC India, said that higher food prices are a cause of concern even as overall wholesale price inflation scenario is still quite benign.
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