Rising Input Costs Set Stage for Broader Inflation Transmission
Source: Refinitiv
India’s inflation trend is becoming more nuanced, as price pressures begin to emerge unevenly across the economy. While consumer-level inflation remains relatively contained, input and supply-side costs are becoming more visible. As a result, inflationary pressures are gradually increasing, with a more noticeable impact on the Wholesale Price Index (WPI) than on the retail gauge.
Inflation based on the Consumer Price Index (CPI) rose mildly to 3.48% in April from 3.40% in March. While the conflict in West Asia entered its second month in April, the upside risks to retail inflation seem to be materialising at a snail’s pace, indicating that the consumer remains largely protected so far. On the other hand, inflation based on the Wholesale Price Index (WPI) surged to a 42-month high of 8.3% in April, from 3.88% in March, as the West Asia conflict began to impact prices across categories.
The expected pass-through of higher energy and other input prices to consumers of various products and services is yet to playout in the aggregate core inflation, which remained unchanged at 3.7% for the fourth consecutive month. Although inflation in restaurants and accommodation services as well as household furnishings, equipment and maintenance, increased as expected, a slower rise in precious metal inflation provided some cushion.
The longer the West Asia conflict continues, more the tentacles of inflation will spread. Companies will start passing the significant rise in input costs to end-consumers (WPI to CPI transmission) to avoid excessive pressure on margins. Persistently high global crude oil prices make passthrough to domestic cooking and transportation fuel prices an imperative. Recently, the government has raised the cost of petrol and diesel in three small tranches. Depreciating rupee also adds to the cost of imported inputs which are already facing higher freight costs.
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