Inflation cools to 5.7% in March

Inflation at the wholesale level eased to 5.7% in March on declining fuel prices and appreciating rupee even as food prices hardened.

Based on the Wholesale Price Index (WPI), inflation was at 6.55% in February.
In March last year, it was at (-)0.45%.

According to the official data released on Monday, food prices saw a sharp rise of 3.12% last month compared with 2.69% in February.

This was primarily because of a big jump in vegetable prices where inflation stood at 5.70%. As for fruits, the figure was also high at 7.62%, while for eggs, meat and fish, it was 3.12%. Fuel inflation declined to 18.16%, from 21.02% in February.

Manufactured items witnessed some softening in the rate of price rise, with inflation at 2.99% in March, against 3.66% in the previous month. Experts said while the rupee has been on an appreciating trend against the US dollar since February, cut in fuel prices in March pushed down fuel and manufactured product prices.

A stronger rupee lowers import costs and cuts down the cost of manufacturing. International oil prices dipped in a month’s time to $49 per barrel from $55, reflecting in a Rs 3.77 per litre cut in petrol price and Rs 2.91 in diesel. Rates have since climbed to $54 per barrel.

The rupee, which was at 66.7 to a dollar in February end strengthened to 64.85 to a dollar. “We believe there is an upside risk to the inflation with the increasing global commodity prices and expectation of possible below-normal monsoons. Food prices could see a moderation in the coming months with the Rabi harvest coming into the markets,” CARE Ratings said in a statement.

Icra, however, projected food inflation to inch up in April, led by perishables, in line with rising temperatures. Going forward, monsoon dynamics would dictate the trend in food inflation, particularly for kharif crops, it said.

“The continued appreciation of the rupee relative to the dollar may weaken the trend of resetting of prices at the beginning of the fiscal year, further dampening core inflation in April 2017,” Icra Principal Economist Aditi Nayar said.

“A likely reversal of the rupee movement in subsequent months, as well as prices changes related to the introduction of GST, would crucially affect the trend for core inflation,” she added.
Inflation for January was revised upwards to 5.53% from the provisional estimate of 5.25%.