Data Drive: Inflation shadow on recovery

By: |
March 20, 2021 7:45 AM

RBI had cautioned in its February Monetary Policy that the fall in inflation may be short-lived with increased pass-through to output prices.

Even core WPI inflation came in high in February, similar to the trend seen in core CPI

The spike in both retail and wholesale inflation rates could compound the growth worries as Reserve Bank of India would be forced to rethink its dovish stance. While wholesale price index-based inflation (WPI) increased to a 27-month high of 4.2% year-on-year (y-o-y) in February, consumer price-based inflation (CPI) moved up 5% y-o-y in the same month, from a 16-month low of 4.1% in the previous month. Even core WPI inflation came in high in February, similar to the trend seen in core CPI – this is indicative of rising commodity prices at both the wholesale and retail levels.

In WPI, while primary food articles saw inflation of 1.3% y-o-y in February as compared to -2.8% in January, inflation in manufactured food products stood at a 13-month high of 7.1% y-o-y, against 4.8% y-o-y in January. Wholesale inflation manufactured products posted the highest inflation since the new series began in 2012 – 5.8% y-o-y in February, as compared with 5.1% in January.

The uptick in inflation in February and fall in Index of Industrial Production in January do not make the Monetary Policy Committee’s task any easier. RBI had cautioned in its February Monetary Policy that the fall in inflation may be short-lived with increased pass-through to output prices.

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