India's Wholesale Price Index (WPI) inflation surged to a 13-month high of 1.3% in April 2024, marking a significant contrast from the previous year's figure of -0.8% in April 2023. This acceleration, although slightly lower than the forecasted 1.7% by ICRA, reflects a notable uptick from March 2024's 0.5%.
Fuel and power, WPI-food, and core-WPI groups emerged as primary drivers of this inflationary trend. The rise in fuel and power prices, along with a seasonal increase in the prices of vegetables and fruits within the WPI-food category, contributed significantly to the uptick. Core-WPI items, particularly manufactured non-food products, also experienced an increase, outweighing the minor dip observed in minerals.
Forecasts by ICRA indicate a further hardening of WPI inflation to 2.0-3.0% in May 2024, a significant jump from the previous year's -3.6% in May 2023. This projection is attributed to an adverse base effect for crude oil and food items. Notably, the Indian basket of international crude oil prices displayed a substantial year-on-year increase, exerting additional upward pressure on the headline WPI print.
The year-on-year deflation in industrial raw materials narrowed sharply to 0.1% in April 2024 from 1.2% in March 2024, primarily influenced by fuel items, cotton yarn, oilseeds, and pulp, paper, and paperboard. Conversely, inflation in minerals, coal, electricity, and fibers experienced a decrease compared to the previous month.
WPI Farm Inputs Index
The WPI farm inputs index remained stagnant in April 2024 compared to the previous year, following a decline in March 2024. The deflation in fertilizers, nitrogen compounds, and other agrochemical products narrowed, while inflationary pressures increased in agricultural and forestry machinery. However, the deflation in fodder widened during this period.
Potato Prices Surge in May 2024
Data released by the Department of Consumer Affairs for May 2024 reveals a notable 8.2% surge in potato prices in sequential terms. This increase is attributed to seasonality factors and potential crop damage in West Bengal due to untimely rainfall. Additionally, there has been a sequential rise in prices of most pulses, sugar, gur, and milk, while cereals and edible oils have seen a softening in prices compared to April 2024.
Outlook on Food Inflation
In May 2024, inflation in 13 of the 22 food items trended higher compared to April 2024, particularly in cereals, vegetables, and edible oils. Despite the softening in cereal prices and early indications of a decline in edible oil prices, the overall food inflation outlook remains uncertain. Potential price shocks due to heatwave conditions and the persistent rise in pulse prices add to the unpredictability. However, the forecast of an above-normal monsoon rainfall by the IMD bodes well for the output of kharif crops, which could stabilize food prices in the coming quarters.
