It was the 18th consecutive month that the headline WPI value was in double digits, although wholesale inflation, as measured by the wholesale pricing index (WPI), climbed by 10.7% in September, down from the 12.4% reading in August, according to official statistics issued on Friday.
Therefore, even while wholesale price inflation may have peaked, it is still significantly higher than what is considered to be acceptable. The Consumer Price Index (CPI), which measures retail prices, climbed from 7% to 7.4% between August and September, reversing the trend shown in WPI’s most recent moderation.Undoubtedly, the WPI and CPI indices have quite different objectives and constituents. WPI is intended to track producer prices in the economy, whereas CPI is intended to track changes in prices faced by the ordinary household. As a result, the CPI is far more sensitive to changes in food costs than the WPI, which gives food items a weight of only 24%. Similar to how WPI has a large number of industrial inputs and outputs but CPI includes items like household services that are not part of the WPI basket.
Despite this discrepancy, the most recent WPI and CPI indices show different trends in food inflation. Between August and September, the food inflation sub-category of the WPI moderated from 9.9% to 8.1%, although the food inflation sub-category of the CPI grew from 7.6% to 8.6%. Once more, even the food basket compositions for the CPI and the WPI are not the same.
According to Rahul Bajoria, head of EM Asia (ex-China) Economics Research at Barclays, “WPI food prices climbed by 0.3% m/m (month-on-month), as the rise in essentials such as cereals and vegetables was offset in part by a strong fall in fruit prices.”The ongoing reduction in the prices of manufactured goods, which have decreased for the fifth consecutive month to 6.3%, is where the WPI statistics provide some respite. Of course, given that the number was already in the double digits in September 2021, some of the moderation observed here may simply be the base effect. The most recent WPI data also demonstrates that the main factor driving the headline WPI statistic continues to be fuel prices, with inflation for the fuel and power category coming in at 32.6%.Given the ongoing decline in global commodity prices and the favourable base effects, we anticipate a considerable slowdown in WPI inflation in the upcoming months. While WPI inflation has moderated, providing some solace, excessive inflation at the retail level indicates that the RBI’s monetary policy council needs to keep an eye on changing price trends. At the December policy meeting, we anticipate another 35 basis point rate increase from the MPC, according to Bajoria’s note.
