We have two reasons to believe that upside risks to CRISIL’s consumer price index (CPI)-linked inflation projection of 5% for this fiscal have begun to kick in: surging input prices and rural economy disruptions.

But before we jump in to parse them, a word on available data.

Official data tells us that wholesale price index (WPI)-linked inflation crossed double-digit level at 10.5% on-year in April 2021 (from 7.4% in March), for the first time since 2010, while CPI inflation, moderated to 4.3% (from 5.5% in March) – led by a high base of the previous year (it had spiked to 7.2% in April 2020).

But last year’s base may not reflect accurate trends, as data collection was disrupted in April and May 2020. Hence, we have focussed on sequential price trends on a seasonally adjusted basis.

When viewed thus, both WPI and CPI indices continued to increase on-month¹ in April 2021, though the rise in WPI has been much sharper (see Figure 1).

Now, for the drivers.

How have international prices risen for key commodities?

Surging international commodity prices, by raising manufacturing costs, are intensifying inflationary pressures (see Figure 2).

¹All monthly inflation numbers are seasonally adjusted