India: Inflation continues to soften in March
In March, consumer prices rose for the first time in four months as the seasonal moderation in prices of fruits and vegetables began to ebb. Consumer prices increased 0.07% from the previous month in March, contrasting the 0.37% decrease recorded in February. Aside from a smaller month-on-month decline in food prices, a moderate pullback in prices of fuels weighed on the reading, which nonetheless expanded in March on the back of higher prices for tobacco and alcohol, apparel, housing and transport.
Inflation moderated further to 4.3% in March, which followed February’s marked deceleration to 4.4%. The headline figure came in above market expectations of a larger slowdown to 4.1% and reflected a shallower decline in food inflation—particularly vegetables and pulses. Food inflation was 2.8% in March, below the 3.3% figure recorded in February. That said, excluding vegetables and pulses, food inflation was unchanged at 2.6%, indicating a floor is in sight. Fuel inflation moderated to 5.7% in March from 6.8% in February on lower LPG prices.
Core inflation, which excludes food and energy products, picked up to 5.4% in March from 5.2% in February. Categories that recorded higher inflation included education, healthcare and housing. Shelter inflation was once again greatly influenced by the impact of the central government’s house rent allowance hike, which the Reserve Bank of India recently emphasized represents a statistical issue and not an underlying source of inflationary pressure. A build-up in core price momentum and a seasonal reversal in food inflation should see headline consumer price inflation trending higher in the coming months. Rising oil prices and an expected increase in minimum support prices for kharif crops are also expected to fuel stronger headline inflation.
The wholesale price index (WPI) rose 0.17% from the previous month in March, which contrasted the 0.17% decline recorded in February. Wholesale inflation, however, was unchanged at 2.5% in March, with a year-on-year decline in food prices offsetting higher fuel and energy prices from the previous month. Inflation in manufactured products was unchanged at 3.0% in March. Annual average wholesale inflation eased from 3.1% in February to 2.9% in March, a seven-month low.