[ad_1]
Provisional data from the Commerce Ministry has shown that India’s wholesale price index (WPI)-based inflation eased to 4.73 per cent in January on an annual basis recording a 24-month low. On the other hand, headline retail inflation rate or CPI-based inflation spiked to 6.52 per cent in January 2023, after witnessing a one-year low of 5.72 percent in December, data released on February 13 by the Ministry of Statistics and Programme Implementation showed.
For the past one year, it has been observed that the WPI and CPI have often followed a contradictory pattern and the linkage between WPI and CPI has not been strong for some months. Economists decode why the CPI remained high, while the WPI has mostly been on a downward trend.
Lower weight to food inflation
According to economists, CPI gives higher weight to food (at nearly 50 per cent), while WPI gives lower weight to food at 24.4 per cent. The spike in CPI inflation rate is primarily driven by food inflation. “The rise in January CPI reflects higher food inflation. Economists WPI food inflation also raised in January to 2.9 per cent from 0.7 per cent in December,” said Gaura Sen Gupta, economist, IDFC First Bank.
High Consumer Demand
There has been a rising demand of cereals, the component that drove the highest spike in the CPI inflation rate. Same holds true for other items that led to the spike in the inflation rate, suggested economists. “The greater pricing power with higher demand is perhaps keeping retail inflation elevated while continued softness in inputs costs and base effects are pulling down inflation at the wholesale level,” added Sakshi Gupta, senior economist, HDFC Bank.
Cooling of global commodity prices
Economists suggested that WPI gives higher weight to commodities, hence when global commodity prices surged, the impact was first visible on WPI in the beginning of 2021 and was subsequently visible on CPI, once producers started passing on higher input costs to consumers. “Conversely as global commodity prices started cooling-off the impact was first visible on WPI inflation which has moderated from peak levels of 16.6 per cent in May 2022 to 4.7 per cent in January 2023,” Sen Gupta said.
Service inflation not under WPI
CPI inflation also captures services inflation (while WPI only captures goods), which is expected to remain sticky as services recovery remains supported by strong urban consumption.
No impact of input cost pressures on CPI
The reduction in WPI inflation indicates that input cost pressures on producers are easing. Economists said that the impact on CPI inflation will take time because ongoing growth recovery has resulted in improving capacity utilization and producer pricing power.
[ad_2]
