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Deciphering the rise in Wholesale Price Index

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The March 2022 Wholesale Price Index (WPI) reflects a four-month high of 14.55% because of disruptions in the global supply chain resulting in increased prices of crude oil, natural gas, mineral oils, and basic metals. Mint analyses the numbers.

The March 2022 Wholesale Price Index (WPI) reflects a four-month high of 14.55% because of disruptions in the global supply chain resulting in increased prices of crude oil, natural gas, mineral oils, and basic metals. Mint analyses the numbers.

What does the WPI data show?

WPI, which has been in double digits for the past 11 months, rose to 14.55% in March as against 13.11% in February. Retail inflation in March peaked at 6.95%, well above the Reserve Bank of India’s (RBI’s) tolerance band. WPI measures increase in prices at the wholesalers’ point and takes into account price increases of only goods, while the consumer price index (CPI) measures price increases at the point of retailer and accounts for changes in prices of goods and services. WPI has a maximum weightage of 64.23% for manufactured goods, while CPI’s maximum weightage of 45.86% is assigned to food and beverages.

What changes were seen in WPI basket?

The WPI basket has weightages of 22.62%, 13.15%, and 64.23% for primary articles, fuel and power, and manufactured goods, respectively. The spike in inflation is because of disruptions in global supply chain, which resulted in increased prices of crude oil, natural gas, mineral oils, and basic metals. Fuel and power prices increased by 34.52%. Prices of food products from both primary and manufactured goods increased by 8.71% in March, while food articles segment in primary goods showed an increase of 8.06% in March, compared with 8.19% in February, reflective of vegetable prices easing in March by 19.88%.

Trend anomaly
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Trend anomaly

What change is proposed in WPI data collection?

WPI aims to measure dynamic price movements in bulk buy by traders. To accommodate structural changes in the economy, the base year is being proposed to be changed from 2011-12 to 2017-18 and to revise the basket of items from 697 to 1,176 to include products such as medicinal plants, pen drives, gymnasium equipment, and lifts.

Why is the composition of data being changed?

The representative sample of goods would then be more reliable and relevant to current production trends. WPI will better reflect the trend in price changes of mostly intermediate goods or raw materials and reveal its impact on the cost of production, indicating the likely change in cost-push inflation. Thus, inflationary pressures in terms of WPI, the handling of which is primarily done through the government’s supply management, can be better tackled through appropriated fiscal policies.

What is the anomaly in WPI and CPI trends?

The WPI trend should ideally be reflected in the CPI as well. But WPI has been recently found to be increasing at more than double the rate of CPI. Does this imply that retailers have not been passing on the cost of products? It could also mean that prices of certain products are not being reflected in the CPI. The classic case is that of the government procuring foodgrain at the minimum support price and distributing it to the poor free of cost.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

 

 

 

 

 

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