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WPI inflation at record high

Date: 16 December 2021 Tags: Basics of Economics

Issue

Wholesale inflation has jumped to 14.23 per cent in November from 12.54 per cent in October on a year on year basis.

 

Details

  • The primary reason for the increase is the rise in food prices especially of vegetables, and minerals and petroleum products.

  • This is the eighth consecutive month in which it has stayed at double-digit level. It is also the highest level of wholesale inflation in the 2011-12 series.

 

Indications

Wide difference between WPI and CPI inflation shows the price pressures on the inputs side, which are expected to pass on to the retail level in the coming months.

 

The trend

  • The retail inflation rate for October was at 4.48 per cent and 6.93 per cent in November 2020. The WPI inflation rate for November 2020 was at 2.29 per cent.

  • WPI inflation grew by 12.54 per cent during October, while the WPI for September was revised to 11.80 per cent from 10.66 per cent. 

  • The inflation range was within the 4+/-2 per cent targeted range of the Reserve Bank of India.

  • Inflation of both core and manufacturing stayed over 11 per cent at wholesale level. This showed that manufacturers are passing on the higher input costs to their output prices. 

 

Factors influencing trends

Inflation in crude petroleum at the wholesale level was at record high. The supply-side bottlenecks were visible in the inflation rates at both retail and wholesale level.

 

WPI inflation

WPI captures inflation of only goods, not services. It tracks basic prices without transportation cost, taxes and the retail margin etc. 

 

CPI inflation

CPI captures inflation of goods and services at retail level. The inflation will be calculated for the prices at which consumers obtain products and services.

 

Future trends

  • Wholesale inflation is expected to remain at elevated levels in the near term due to distortion in supply chain.

  • The risks due to Omicron variant has further fuelled concerns that transportation costs are expected to increase.

  • The supply-side shortages are pushing up prices at the consumer level forcing demand to reduce in the upcoming days.