WPI Inflation Continues To Remain High

The wholesale inflation across the country eased to 11.16% in July on a year-on-year basis. The data has been recently released by the Ministry of Commerce and Industry, GoI. The wholesale price index (WPI) reached 12.07% in June this year and the revised WPI in May was 13.11%.

The WPI in July 2020 was reduced to (-)0.25%. So, the month of July 2021 has managed a better positioning of WPI, but the rate is still high considering the overall economic situation of the country. The Consumer Price Index (CPI) too eased to 5.59% in July. It was above 6% for two consecutive months earlier tightening the pressures on common citizens. As the lockdown restrictions have been alleviated by the government, the price indexes started to ease.

Why is the rate still high in July?

Commenting on that, the union government in a related statement said, "The high rate of inflation in July 2021 is primarily due to low base effect and rise in prices of crude petroleum and natural gas; mineral oils; manufactured products like basic metals; food products; textiles; chemicals and chemical products, etc. as compared the corresponding month of the previous year."

In the primary articles that have a weight of 22.62% in WPI - the index increased by 1.05% for the major group. Prices of crude petroleum and natural gas (7.91%), non-food articles (2.35%), and food articles (0.69%) increased in July, 2021 in the month-over-month index. Only prices of minerals (-8.11%) declined in July. Fuel and power has a weight of 13.15% in WPI - the index increased by 0.53%. However, prices of electricity (-11.61%) declined in July from the earlier month when prices of coal remain unchanged. Manufactured products hold 64.23% weight in WPI. The index for this major group increased by 0.38%. 3 major constituents PG, Petrol, and HSD have all seen a steady ascend in inflation. Crude oil saw a steep slide in the last year though. So, the WPI could not drop considerably in July.

What Is a Wholesale Price Index (WPI)?

WPI measures and tracks the changes in the price of goods at the wholesale market; that is at the factory gate before the retail level. WPI is reported monthly. The total costs of the goods are considered and compared with the same in the base year. The base year for WPI in India now is 2011-12 which has been effective from April 2017. When WPI tracks the wholesale price of goods, CPI tracks the average price that households pay for goods and services. It is measured as an indicator of the country's inflation level. However, the RBI uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy.

'Primary articles' is a major component of WPI which is subdivided into food articles (cereals, paddy, wheat, pulses, vegetables, fruits, milk, eggs, meat, and fish, etc.) and non-food articles (oil seeds, minerals, and crude petroleum). The next major group in WPI is fuel and power that tracks petrol, diesel, and LPG prices. However, the largest group is manufactured goods like textiles, apparel, paper, chemicals, plastic, cement, metals sugar, tobacco products, vegetable/animal oils, and fats, etc.