High WPI may put pressure on retail inflation: RBI

Sounding a note of caution, the Reserve Bank said on Friday said there is a risk of high wholesale price inflation (WPI) putting pressure on the retail inflation, albeit with a lag.

In its annual report, the RBI said that the cost-push pressures from high industrial raw material prices, transportation costs and global logistics, and supply chain bottlenecks continue to impinge on core inflation. “The substantial wedge between wholesale and retail price inflation amidst a sharp rise in manufactured products’ inflation poses the risk of a possible passthrough of input cost pressures to retail inflation with a lag, although slack in the economy is muting the pass-through,” the central bank noted.

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The conflict over Ukraine and the consequent spike in commodity prices has overcast the outlook for inflation in India as in the rest of the world, it added. To control spiralling prices, the government had recently cut excise duty on petrol and diesel and also waived import duty on some raw materials used in the steel and plastic industry. Besides, export duty was hiked on iron ore and iron pellets.

A rise in price across all items from fuel to vegetables and cooking oil pushed WPI or wholesale price inflation to a record high of 15.08 per cent in April and retail inflation to a nearly eight-year high of 7.79 per cent. High inflation prompted the Reserve Bank to hold an unscheduled meeting to raise the benchmark interest rate by 40 basis points to 4.40 per cent earlier this month.