WPI inflation peaked in March, say economists

The annual rate of inflation, as underscored by the wholesale price index (WPI) may have peaked out thanks to base effect, according to economists polled by DNA.

“WPI inflation has peaked out in March and I expect it to be 9.5% for April,” said Abheek Barua, chief economist, HDFC Bank.
A Prasanna, economist, ICICI Securities Primary Dealership, said for March it may get revised upward to 10.40%.

“For April, it will come down and we expect it to be 9.5%,” Prasanna said.

WPI inflation touched a 17-month high in March at 9.90% compared with 9.89% in February.

“We grow more confident that inflation will peak off at 10-11% over the summer, after the Met just forecast a 98% ‘normal’ south-west monsoon,” said a Bank of America-Merrill Lynch report.

WPI Inflation in March was driven by higher food and fuel prices. On a year-on-year basis, the food articles index was up 16.65% and the fuel price index rose 12.71% in March.

“Going forward, the manufacturing food index will start easing and this will also contribute to the WPI inflation coming down,” said Indranil Pan, chief economist, Kotak Mahindra Bank.

Pan also expects the WPI inflation for April at 9.5%.

“The good rabi crop harvest will also add to easing inflationary pressure,” said Manoranjan Sharma, chief economist, Canara Bank.

To tackle the burgeoning inflation, Reserve Bank of India (RBI) has already hiked cash reserve ratio by 100 basis points and key short-term lending and borrowing rates (repo and reverse repo rate) by 50 basis points in 2010.

“These policies should have a gentle impact in tightening money in the economy and should dampen further inflationary pressures,” finance minister Pranab Mukherjee said last week in New Delhi.

RBI has forecast that inflation will ease to 5.5% by March 2011.