India's wholesale price index increased by 2.47 percent on the year in March, down only slightly from 2.48 percent on the year in February and suggesting some stabilisation is taking place after bigger declines in each of the three previous months. Consumer price index data published last week also showed a relatively small decline in headline inflation from 4.44 percent to 4.28, closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. The wholesale price index rose 0.17 percent on the month after no change previously.
Steady headline WPI inflation in March reflects offsetting moves in food and fuel prices. Food prices, which account for around 15 percent of the index, fell by 0.29 percent on the year in March after increasing by 0.88 percent on the year in February, with vegetable prices dropping by 2.70 percent after an increase of 15.26 percent previously. In contrast, the year-on-year increase in fuel and power prices (around 13 percent of the index) picked up from 3.81 percent in February to 4.70 percent in March. Inflation for manufactured products (around 64 percent of the total index) fell slightly from 3.04 percent to 3.03 percent.
Earlier this month the Reserve Bank of India left policy rates on hold and revised down their near-term inflation forecasts in response to the recent weakness in food and fuel prices. Headline CPI inflation is now forecast to be between 4.7 percent and 5.1 percent in the first half of the new fiscal year, compared with a previous forecast for above 5.0 percent, and to fall to 4.4 percent in the second half, compared with the previous forecast of 4.5 percent.
Despite the downward revisions to the forecasts, they still imply that the recent declines in headline inflation will reverse in coming months, and officials continue to argue that risks to their forecasts are skewed to the upside. Officials also reiterated their commitment to keeping CPI inflation close to 4.0 percent, suggesting that rate increases might be considered if price pressures do pick up as anticipated.