India's annual rate of inflation based on wholesale prices softened in March at 5.70 per cent after having risen to over a three-year high of 6.55 per cent in February on rising food and fuel prices, official data showed on Monday. Industry said its upward push on retail inflation could dampen the possibility of an RBI rate cut.

According to data released here by the Commerce Ministry, the wholesale price index (WPI) in March 2016, however, had declined to (-)0.45 per cent.

Food articles rose by 3.12 per cent during the month under review, as against 4.09 per cent in March 2016.

However, expenses on primary articles, which constitute 20.12 per cent of the WPI's total weight, rose by 4.63 per cent during March, as compared to 2.97 per cent in the same month a year ago.

The wholesale inflation rate for onion was higher year-on-year at (-)10.78 per cent, but that for potatoes was lower at (-)17.07 per cent.

Overall, vegetable prices in March rose sharply at 5.70 per cent, as compared to a negative inflation of (-)2.03 per cent in the same month a year ago.

Year-on-Year, while wheat became expensive by 4.65 per cent, protein-based food items such as eggs, meat and fish became dearer by 3.12 per cent.

Prices of manufactured products, which comprise nearly 65 per cent of the index, continued to rise by 2.99 per cent, as compared to 0.13 per cent in March a year ago.

The sub-category of manufactured food products registered a rise of 6.96 per cent, as against 5.58 per cent a year ago.

Fuel and power price inflation accelerated massively in March, shooting up 18.16 per cent, as compared to a decline of (-) 8.30 per cent in the same month a year ago.

Segment-wise, the price of high-speed diesel rose by 26.24 per cent last month, while that for petrol climbed by 20.56 per cent and for LPG by 7.25 per cent.

The ministry also revised the January 2016 WPI inflation rate to 5.53 per cent, from the earlier provisional reporting of 5.25 per cent.

Official data last week showed that the Consumer Price Index (CPI), or retail inflation, during March rose month-on-month at 3.81 per cent. The CPI inflation rate in February was at 3.65 per cent.

Year-on-Year, however, the retail inflation rate fell as compared to 4.83 per cent recorded in March 2016.

The government target on retail inflation is four per cent plus-or-minus two percentage points for the next five years.

Earlier this month, with inflationary concerns in mind, the Reserve Bank of India (RBI) retained its key lending rate unchanged at 6.25 per cent, saying it awaited further macroeconomic data before deciding on any changes.

The RBI said risks are evenly balanced around the inflation trajectory at the current juncture. "There are upside risks to the baseline projection," the RBI policy statement said.

"Inflation developments have to be closely and continuously monitored, with food price pressures kept in check so that inflation expectations can be re-anchored. At the same time, the output gap is gradually closing. Consequently, aggregate demand pressures could build up, with implications for the inflation trajectory," it added.

At its last policy review of the previous fiscal in February, while holding rates at 6.25 per cent, the RBI had changed its policy stance from "accommodative" to "neutral" leaving it free to move either way with rates. Its monetary policy committee was of the view that excluding food and fuel, inflation has been unyielding at 4.9 per cent since September 2016.

"The Committee is of the view that the persistence of inflation excluding food and fuel could set a floor on further downward movements in headline inflation and trigger second-order effects."

The average level of retail inflation in 2015-16 was at 4.9 per cent.

"Rise in WPI numbers at a level of 5.70 per cent may have corresponding upward impact on Consumer Price Index (CPI), which may limit the possibility of rate cut by Reserve Bank of India, which has already shown concern for increase in inflation in the future, therefore, has changed its policy stance," industry lobby Assocham President Sandeep Jajodia said in a statement here.

"We expect food inflation to inch up in April 2017, led by perishables, in line with rising temperatures. The impact of key inflation risks such as monsoon dynamics and the Goods and Services Tax won't be clear for at least a few more months, which suggests a high likelihood of a prolonged pause for the policy rate," domestic rating agency ICRA's Principal Economist Aditi Nayar said in a statement.

"Food inflation has increased a bit, and this would require greater monitoring in light of the evolving weather conditions," said industry chamber Ficci President Pankaj Patel.