At first glance, India’s inflation data offers comfort. March consumer inflation or CPI remained benign, giving the impression that price pressures are under control despite the West Asia war and the crude price surge. But the wholesale inflation of WPI presents a less reassuring picture.Wholesale inflation for March has jumped sharply to 3.88% well above the CNBCTV18 poll of 3.35%. What’s more from the 2.13% in February, the March WPI works out to a 175 basis point rise in a single month, which is not trivial.
The increases is largely but not entirely due to energy. Crude petroleum and natural gas have surged 50% and 35% respectively over February levels. Recall gas importers faced a huge scarcity situation in March while refining companies also faced the full brunt of imported crude, whose price had shot up to $140/barrel on some days for some grades. LPG, petrol and diesel also added to the pressure on the March WPI, since only retail prices were controlled, not the wholesale price.
Some spillover into manufactured items is already visible—manufactured food products, edible oils, textiles, chemicals, rubber and plastics have all seen around 150 bps price increases in just one month.This matters because WPI often acts as a pipeline indicator. What begins as cost pressure for producers eventually gets transmitted to consumers. The benign CPI we are seeing today could well be a lagging indicator.There is, of course, a counterpoint. A similar spike was seen in March 2022, the year and month of the Ukraine war. March 2022 saw a 250 bps rise in WPI over February and the jump continued over the next two months as well. The worry is whether this pattern will repeat.If the West Asia war was to wind down and the Strait of Hormuz opened soon, the current WPI spurt may ease quickly. But if it persists, the implications are mixed. Nominal GDP growth could get a boost, even crossing 12%, but real growth may come under pressure. That puts the RBI in a difficult position—balancing growth concerns against emerging inflation risks.For now, the message is clear: the inflation story is not as comfortable as CPI alone would suggest.
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