“Food inflation was the largest contributor as it rose to 3.9 per cent from 3.5 per cent, while fuel inflation rose to 1.7 per cent from 0.1 per cent and core inflation stood unchanged at 3.7 per cent for a third month in a row,” Dipti Deshpande, Principal Economist, Crisil Ltd., said.
Despite a full month since the West Asia conflict began, retail inflation showed a relatively low impact from the energy shock. March had seen Brent crude spot prices flame up 45 per cent, and international natural gas prices soar by 69 per cent compared with February, she added.
While the government announced an increase of Rs. 60 in domestic LPG cylinder (LPG and PNG together has a small weight of 1.98% in CPI), it kept retail prices of petrol and diesel (combined weight of 4.8% in CPI) unchanged. Thus, retail inflation in March was fairly insulated from the energy price shock. Core inflation was contained by slower gold and silver inflation, Deshpande noted.
In April so far, consumers have again been shielded from the rise in energy prices with the government announcing a cut in excise duty on petrol and diesel starting late March. In the coming months, while a low base will perk up food inflation, the adverse impact of heatwaves and increased risk from a below-normal southwest monsoon assign an upside to food inflation, she added.
Meanwhile, while higher crude prices are being absorbed by the government, a persistent increase in global prices could see retail fuel prices climb up. Additionally, the second-round impact on core inflation via higher energy, trade and transportation costs is on the cards, Dipti Deshpande added.
“Our base case call of 4.5 per cent average inflation could rise to 4.7 per cent if the West Asia conflict continues till April-end and energy prices remain elevated,” she noted.
