Supply chain disruptions & strict prices buildup lead to record WPI inflation
The month of April saw an all-time surge of 10.49% in wholesale price index (WPI) inflation. This can be attributed to a hike in food and commodity prices. During the Coronavirus pandemic the disruption in supply chains along with pricing pressure buildup also contributed to the record inflation at the level of wholesale in India.
Experts predict that days ahead can witness a further rise in both wholesale and retail inflation. In April, the retail inflation had eased to 4.29% showcasing a three-month drop. This was from March’s 5.52%. The drop due to lower food prices is expected to rise as a result of inflation in wholesale. This is expected to pass through in relation to consumer-level high prices. Furthermore, the spread of the virus and the impact of the pandemic is expected to cast a shadow on the supply chain, leading to disruptions at the primary ‘mandi’ level. This can affect and dampen the good harvest impact of this year. High food inflation is expected after projections of a good monsoon and thereby a good harvest season this year. The low base of April last year when WPI inflation was (-) 1.57%, also led to the spike in April 2021. In March 2021, the WPI inflation was 7.39%.
“Interestingly, in sequential terms, the WPI-food recorded a sharp 3.8 per cent MoM increase in April 2021, as compared to a relatively limited 1 per cent uptick in the CPI-food index, suggesting a greater impact of supply chain disruptions at the wholesale level,” ICRA chief economist Aditi Nayar said.
Rise in commodities’ prices, including minerals, edible oil, crude oil, coal, fertilisers, plastic, basic metals, electrical/electronic items, auto and auto components also have led to inflation rise. These commodities comprise about 44% in the WPI.
“Since the global prices of these items are mostly a pass-through into domestic prices, a surge in global commodity prices have put significant pressure on the headline wholesale inflation. In fact, the contribution of these items to the headline wholesale inflation increased to 72.6 percent during February-April 2021 from negative 34.4 per cent during September-November 2020,” Sunil Kumar Sinha, principal economist, India Ratings & Research said.