Producers’ inflation rate based on Wholesale Price Index (WPI) reached at 15 per cent in April. It was 14.55 per cent in March. With this the WPI inflation has now been in double digit for 13 consecutive month and is at the highest level in the 2011-12 series.
“The high rate of inflation in April 2022 was primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, food articles, non-food articles, food products and chemicals & chemical products etc. as compared to the corresponding month of the previous year,” a statement issued by the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT) said on Tuesday. The rate of inflation based on WPI Food Index increased marginally to 8.88 per cent in April from 8.71 per cent in March.
The retail inflation based on Consumer Price Index (CPI) is already at 8-year high of 7.79 per cent in April. With both the inflation rates at very high levels , the interest rate is set to go northwards further. Earlier this month, Monetary Policy Committee (MPC) raised policy repo rate (rate at which RBI lends money to banks) by 40 basis points to 4.40 per cent and Cash Reserve Ration (CRR, part of incremental deposits, banks are required to keep with RBI) by 50 basis points to 4.5 per cent. Following this, various banks raised interest rates on loans.
Rajni Sinha, Chief Economist with CareEdge said, the all-time high level of WPI inflation at 15.08 per cent in April was driven by the rise in prices across the board with manufactured products and fuel and power leading the charge. The double-digit inflation level was very much in line with the CareEdge expectation of 15 per cent.
“Higher energy and metals prices due to supply-side bottlenecks have added to the input cost pressures for the domestic producers. As inflation is primarily supply-driven, we expect upward price pressures to persist in the near term. With recovery in demand, producers are expected to pass on the rising costs to consumers which could push retail inflation even higher,” she said.
Aditi Nayar, Chief Economist with ICRA said that the heatwave led to a spike in prices of perishables such as fruits, vegetables and milk, which along with a spike in tea prices pushed up the primary food inflation.
The core WPI inflation reverted to a four-month high of 11.1 per cent in April, with producers forced to pass on the input price pressures. While the month-on-month rise in the core-WPI eased to 1.4 per cent in April from 1.8 per cent in March, it exceeded 1 per cent for the third consecutive month,
With the WPI inflation remaining solidly in double-digits, the probability of a repo hike in the June review of monetary policy has risen further. “We expect a 40 bps hike in June followed by a 35 bps rise in August, amidst a terminal rate of 5.5 per cent to be reached by mid-2023. With the source of inflation being global supply issues and not exuberant domestic demand, we maintain our view that over tightening will douse the fledgling recovery without having a commensurate impact on the origins of inflationary pressures,” she said.