Inflation Surge In March Does Not Fully Reflect Ukraine War's Disruptions

India's inflation data for March suggests spiralling price pressures, but that does not yet fully reflect the fallout of the Ukraine war, which has pushed energy rates and commodities' costs to surge.

That suggests there is more inflation pain ahead for India.

Government data on Monday showed the wholesale price-index-based inflation (WPI) rose to 14.55 per cent from a year ago, marking the highest since November 2021, and double-digit prints for the 12th straight month. In February, WPI rose to 13.11 per cent annually.

According to the commerce ministry report, the latest jump was primarily due to surging prices of crude petroleum, natural gas, mineral oils and essential metals.

Indeed, the report showed prices of crude and petroleum products rose due to disruptions to the global supply chains driven by the Russia-Ukraine war.

Last week's data showed annual retail inflation spiked to a 17-month high of 6.95% in March due to higher food and oil prices.

Those inflation figures, while high, do not yet fully reflect the fuel rate hikes and the wide pass-through of energy price rises to other commodities and services in India.

State oil retailers restarted price revisions on March 22 after a four-month hiatus.

While Monday marks the 12th consecutive day that fuel rates have remained unchanged, petrol and diesel prices have gone up by Rs 10 per litre, respectively, after 14 rate revisions.

And the latest trend is not encouraging. Indeed, the Indian crude oil basket prices are rising again, with data showing an over 8% rise last week.

Since Russia invaded Ukraine late in February, commodities prices have risen sharply. Global crude price at one point touched multi-decade highs, with benchmark crude futures above $100 per barrel.

The rise in global crude prices has pushed the country's import bill because India depends on imports for almost 85 per cent of its oil needs, and the dollar strength at the same time has hurt the country's external balances and the currency severely.

Indeed, the dollar's gains have been broad on expectations of a very aggressive Federal Reserve monetary tightening path. And that has weighed on countries relying on imports for their basic commodities needs.

That was reflected in India's latest forex reserves, which fell for the fifth consecutive week, down by $2.47 billion in the week that ended on April 8, taking the total to $600.004 billion, according to the central bank data.

The Reserve Bank of India may be forced to act faster on policy tightening after March inflation prints showed the fallout of the Ukraine war pushing energy rates higher was expected to add to the already spiralling price pressures.

After repeated messages that the central bank was focused more on growth and that inflation was transitory, the RBI, at its recent meeting, reluctantly shifted its policy towards bringing inflation under control.

While the central bank starts to adjust its policy vision, there will be more pain ahead for India on the inflation front.