New Delhi, April 17:
A fall in the prices of pulses, potato and onion helped India’s wholesale price inflation (WPI) to ease to 5.7% in March from a two-and-a-half years high of 6.55% in February.
However, food inflation inched up to 3.12% in March from 2.69% in February on festival demand.
Analysts warned that a warmer summer and uncertainty over monsoon rains may push up inflation further in coming months, leaving Reserve Bank of India little room to lower rates. The central bank left policy lending rate (repo) unchanged and hiked borrowing rates (reverse repo) at the last policy review on April 7.
“RBI has already signalled that uncertain monsoon and low statistical base effect will keep CPI inflation at 4.5% in the first half and 5% in the second half of 2017-18. The government may also increase the minimum support prices (MSPs) of crops, which will put an upward pressure on inflation,” said Madan Sabnavis, chief economist of Care Ratings.
A pick up in new currency in circulation helped revive consumer demand after a bout of severe cash crunch during the demonetisation drive of November-December of 2016.
Festival demand pushed up prices of vegetables by 5.7% and fruits by 7.6%. However, potato prices fell 17%, onion 10.8% and pulses 6.1% from a year ago.
Mineral prices were up 23.5% while fuels were costlier by 18.2% as petrol and diesel prices were revised up.
Last week, government data showed a rise in the prices of sugar, confectionary, snacks and fruits during Holi pushed up India’s consumer price inflation (CPI) to 3.81% in March from 3.65% in February.
The slowing pace of remonetisation, or pumping new Rs 500 and Rs 2,000 notes into circulation, during March to replace the scrapped Rs 500 and Rs 1,000 notes in November, helped inflation to stay within 4% in the financial year ending March 2017.
Consumption and investment activity were dampened after Prime Minister Narendra Modi on November 8 announced the bold decision to scrap Rs 500 and Rs 1,000 notes.
While the demonetisation weeded out Rs 15.44 lakh crore or 86% of currency from circulation, the government and RBI has been able to pump in about Rs 13.35 lakh crore worth of new notes so far.