Fuel prices are expected to vary from one day to the next under a new pricing system. Photo: iStock

High fuel and commodity prices have ramped up India’s wholesale price inflation to a four-month high, according to recently-released government data. Fast-rising inflation is crimping hopes for a post-pandemic economic bounce.

The wholesale price index inflation rose to 14.55% in March, up from 13.11% in February, as the Russia-Ukraine war disrupts global supply chains. India’s wholesale price-based inflation has remained in double-digit territory for the last 12 months, hitting a high of 14.87% in November 2021.

Commerce and Industry Ministry data shows that crude oil prices were the biggest contributor to the rise in the wholesale price index inflation in March 2022.

Local oil companies passed on high global crude oil prices to Indian consumers by hiking domestic gasoline and diesel prices in March, after a four-month-long hiatus. Domestic cooking gas prices were also hiked during the month.

“The high rate of inflation in March is primarily due to rise in prices of crude petroleum and natural gas, mineral oils, basic metals, etc owing to disruption in the global supply chain caused by the Russia-Ukraine conflict,” the Commerce and Industry Ministry said in a statement.

India depends on imports to meet 85% of its oil needs; global crude oil prices have been mostly on the rise since Russian tanks rolled into Ukraine on February 24.

In March, crude petroleum inflation spiked 83.56%, from 55.17% in February.

Economists expect wholesale inflation to climb further in April, as the fuel price rise effect will become much more widespread. They expect high fuel prices to keep input prices high in the months ahead, forcing manufacturers to pass on higher input prices to customers.

Retail inflation rose to 6.95% in March – the third consecutive month that the consumer price index breached the 6% mark. This is much higher than the Reserve Bank of India’s tolerance limit of 4% with a margin of 2% on either side.

While announcing the bi-monthly monetary policy earlier this month, the central bank had raised the retail inflation projection for the current fiscal year to 5.7%, from an earlier forecast of 4.5%.

It said that given the excessive volatility in global crude oil prices since late February and geopolitical uncertainties, any projection of growth and inflation is fraught with risk.

The Reserve Bank of India has kept interest rates unchanged at a low rate for the last two years to promote economic recovery from the Covid-19 pandemic. Its stance was to focus on growth, with any inflation considered transitory.

But in the bank’s last meeting, its officials conceded that inflation needed to be brought under control. Analysts feel that if inflation continues to run high in April, the central bank may consider raising interest rates.

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