Sensex, Rupee slip amid pandemic fears as inflation surges in March

The BSE Sensex tanked 1708 points or 3.44% driven by the fear of fresh pandemic effects, taking the Rupee past the ₹75 mark against the dollar on a manic Monday for the economy, even as inflation surged further in March and industrial output collapsed sharply in February as per official data.

India’s retail inflation accelerated to 5.52% in March 2021 from 5.03% in February, with urban areas recording a high 6.52% inflation. The Consumer Food Price Index hardened to 4.94% from 3.87% in February, with urban India seeing a much higher surge of 6.64% in food inflation.

Industrial output, meanwhile, fell for the second successive month in February, contracting by 3.6%, suggesting that the recovery is still shaky, economists said.

“On a discouraging note, infrastructure and construction goods recorded a contraction of 4.7% in February, after having displayed an uninterrupted expansion since August 2020. Consumer non-durables output has shrunk in three of the last four months, suggesting that sentiment remains weak at the bottom of the pyramid,” said Aditi Nayar, principal economist at ICRA.

Retail inflation through 2020-21 was the highest in the last seven years at 6.2%, said Devendra Pant, chief economist at India Research and Ratings. “Rising retail inflation and falling wage growth is double whammy for consumption demand, which even otherwise is under pressure.”

Higher fuel prices due to a combination of higher crude prices and elevated excise duties pushed transport and communication inflation to 12.5%, the highest since the current inflation index series began, Mr. Pant said. Among services, household goods and services inflation hit a 10-month high while recreation and amusement services touched a 9-month high.

While some relief is expected in April’s inflation numbers, as base effects from last year’s national lockdown kick in, the uptick in inflation is expected to resume thereafter, Ms. Nayar reckoned.