Higher wholesale price inflation may keep RBI away from cutting rates: Moody’s

NEW DELHI: Reversing the declining trend, the wholesale price inflation (WPI) reaccelerated in March, with WPI growth hitting 5.7 per cent YoY, the fastest pace since December. All major categories accelerated with food articles, fuel, and manufactured goods recording faster price growth. The overall WPI inflation, which was on decline since December, had dropped to a nine-month low of 4.68 per cent in February.

"This set of WPI numbers has implications for the near term monetary policy outlook. The RBI has lately paid closer attention to the CPI, but the WPI is still important and can in some instances be a leading indicator of consumer prices," said Glenn Levine, Senior Economist at Moody's Analytics. The data suggests that inflation pressures remain elevated. There will most likely be no further rate increase in the current cycle, but any previously small chance of a near term rate cut is now off the table completely, added Levine.

The wholesale price inflation reaccelerated in March as price growth across all the major WPI categories increased. Food price inflation ticked higher as vegetable prices rose quickly, especially of potatoes.

Fuel prices also rose at a faster pace, with LPG and diesel prices both accelerating, while petrol price growth eased slightly. But perhaps the biggest surprise was in the price of manufactured goods, which grew at their fastest pace since May 2013. This is the closest that India has to a core rate of inflation and it suggests that supply and demand are close to balanced after core inflation trended lower through much of 2013. This may be because of better demand, but more likely it is partly due to supply constraints.

(With inputs from Moody's report)