India experienced a surge in wholesale price inflation in March, primarily driven by increased global energy prices amidst tensions in West Asia. The rise was widespread, particularly in crude petroleum, natural gas, fuel, and power sectors. Food inflation remained stable at 1.8%, while non-food manufactured items’ core WPI spiked to a 41-month high of 3.7% in March.
The core index saw a 0.7% increase sequentially in March, aligning with the average of the preceding three months. Economists anticipate that elevated global energy prices, coupled with rising shipping, freight, and input expenses, will elevate landed import costs, exerting upward pressure on wholesale inflation in April. The ICRA projects WPI inflation at around 3.5% for the fiscal year, assuming an average crude oil price of $85 per barrel for FY27.
Reflecting similar concerns, the latest WPI data underscores a more pronounced impact of the West Asia crisis compared to retail inflation. The divergence is attributed to a substantial surge in bulk diesel and commercial fuel prices, while retail petrol and diesel prices remained stable. Refineries raised bulk diesel prices by over 25% in March, with domestic and commercial gas cylinders also witnessing price hikes.
Despite the potential resolution of the West Asia crisis, global crude oil prices are expected to average $85–90 per barrel in FY27. The burden of higher crude oil prices is anticipated to be shared by households, government, and oil marketing companies. Oil marketing firms are believed to withstand crude prices up to $100–105 per barrel due to robust refining margins. It is projected that WPI inflation will average around 5% in FY27, assuming crude oil at $90 per barrel.
Regarding monetary policy, the Reserve Bank of India is likely to maintain the status quo on policy rates. Given prevailing growth concerns, the RBI is not expected to rush into reversing the rate cycle. However, there is a possibility of a rate cut towards the end of the fiscal year if the growth outlook significantly deteriorates below the long-term potential growth.
