Wholesale inflation jumps 14.5% due to higher fuel prices

Wholesale inflation jumps 14.5% due to higher fuel prices

Fuel costs drove wholesale inflation to 14.5 percent, the highest level in at least ten years and the most since November last year, indicating inflationary headwinds. According to the most recent data issued by the ministry of business and industry, wholesale prices, as assessed by the wholesale pricing index (WPI), toughened significantly between February and March. WPI growth in March was over 1.5 percentage points higher than February's 13.1 percent.

After retail inflation, as measured by the Consumer Price Index (CPI), startled observers by rising to 6.95 percent in March 2022, the latest WPI value, which is the second highest in the current series (since April 2012), was released.

Unlike retail inflation, which was mostly driven by a rise in food costs, wholesale inflation in March was driven by fuel prices, which accounted for more than 25% of the increase. The increase is due to a rise in crude oil prices in March. The CPI, which tracks retail gasoline and diesel prices, actually saw a decrease in its fuel sub-component of inflation in March, as the data did not account for the full impact of the price hikes.

"Though the impact of the Russia-Ukraine conflict has been primarily negative for the global and Indian economies, there are some advantages as well," said Dr Sunil Kumar Sinha, principal economist at India Ratings. To begin with, the nominal GDP has turned out to be greater than expected due to increased inflation, resulting in substantially more tax collections than anticipated previously. Second, due to disruptions in wheat supplies from Russia and Ukraine, India is currently exporting wheat on the international market."

The supply chain disruption caused by Indonesian export restrictions and the Russia-Ukraine war is projected to keep it elevated in the near term, according to Dr Sinha.

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