March inflation hike does not fully reflect the effects of the war in Ukraine
India’s inflation data for March points to mounting price pressures, but it does not fully reflect the effects of the war in Ukraine, which pushed energy tariffs and the cost of raw materials soaring.
That suggests more inflationary pain is ahead for India.
Government data on Monday showed that wholesale price index (WPI) inflation rose to 14.55 percent from a year ago, the highest since November 2021, and prints double-digits for the 12th straight month. In February, the WPI rose to 13.11 percent a year.
According to the Commerce Department’s report, the latest jump was mainly due to rising prices of crude oil, natural gas, mineral oils and essential metals.
Indeed, the report showed that the prices of crude oil and petroleum products rose due to disruptions to global supply chains caused by the war between Russia and Ukraine.
Last week’s data showed annual retail inflation peaked to a 17-month high of 6.95% in March on the back of higher food and oil prices.
Those inflation rates, while high, do not yet fully reflect fuel tariff increases and the broad pass-through of energy price increases to other goods and services in India.
State oil retailers resumed price revisions on March 22 after a four-month hiatus.
While Monday marks the 12th consecutive day that fuel tariffs have remained unchanged, petrol and diesel prices have risen by Rs 10 per liter respectively after 14 tariff revisions.
And the latest trend is not encouraging. Indeed, Indian crude oil basket prices are rising again, with data showing an increase of more than 8% last week.
Since Russia invaded Ukraine in late February, commodity prices have risen sharply. The global price of crude oil reached multi-decade highs at one point, with benchmark crude oil futures exceeding $100 a barrel.
The rise in global crude oil prices has strained the country’s import bill as India relies on imports for nearly 85 percent of its oil needs, while the strong dollar has seriously damaged the country’s external balance sheets and currency. .
Indeed, the dollar’s gains were large on expectations of a very aggressive monetary tightening trajectory from the Federal Reserve. And that has weighed on countries that depend on imports for their basic needs.
That was reflected in India’s latest forex reserves, which fell for the fifth consecutive week by $2.47 billion in the week ending April 8, bringing the total to $600,004 billion, according to central bank data.
The Reserve Bank of India may be forced to step up its policy tightening action after inflationary pressures in March showed that the effects of the war in Ukraine, which pushed up energy tariffs, are expected to lift already mounting price pressures. would increase.
After repeated reports that the central bank was more growth-oriented and that inflation was transient, the RBI reluctantly changed its policy to bring inflation under control at its recent meeting.
As the central bank begins to adjust its policy outlook, India will suffer more on the inflation front.
