WPI Hitting Record Highs a Cause for Concern

The Wholesale Price Index (WPI) has hit a record high with double digits (the highest since the introduction of new 2013 series) at 10.49 per cent in April 2021 against 7.39 per cent in March 2021. It is true that such a high number may be partly because of the lower base of last year, when the WPI had fallen by 1 per cent month-on-month-basis in April 2020. This lower base must have played a role in elevating the figure this year. However, even the sequential increase seems a bit worrisome.

On a month-on-month basis, WPI went up by 1.86 per cent, led by Primary Articles (+3.83 per cent) and Manufacturing Products (1.65 per cent). However, some temporary respite came from Fuel & Power group which fell by 1.0 per cent on m-o-m basis. But with the recent increase in fuel price, it can inch up again.

Owing to supply disruptions almost all the food articles have witnessed a rise in the month. On the manufacturing front, the spill-over impact of the earlier rise in fuel is now being witnessed. The index was already under pressure owing to a persistent rise in input costs, particularly metal prices.

Will CPI Follow the Same Path?

Interestingly, the headline Consumer Price Index (CPI) for India came at 3 months low at 4.29 per cent for the month of April 2021 and on a m-o-m basis, it rose by 0.7 per cent.

Very rarely, one sees the WPI yearly inflation numbers being higher than that of CPI. With WPI being a leading indicator of CPI, the CPI numbers will also feel the pressure. Also, IHS Markit purchasing managers' index (PMI) for India has already stated the current increase in input costs is the steepest for nearly seven years. This itself indicates higher retail inflation for coming months.

Going forward, the yearly WPI figure would even inch further as the adverse base impact would be continuing for the month of May 2021 also.

For RBI, the situation is becoming tricky as they might observe both lags of inflation rising on one hand and on another having a fear of downside risk to growth owing to the recent lockdown.

The figures have given rise to an increasing phenomenon where WPI and CPI are going on opposite paths. More than anything, this is owing to the statistical base impact for these indices. Going forward, owing to the rise in input costs and supply disruptions, WPI would inch up further and its spill-over impact is also expected to be seen in CPI.

The author is HoD, Financial Markets, ITM B-School.

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