India WPI eases to 12.07% in June from May's record spike

India's inflation statistics are being closely monitored by all, to gauge the impact on purchasing power of households.

 India WPI eases to 12.07% in June from May's record spike

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• The story: The Wholesale Price Index (WPI) of India eased from May 2021's record high as it rose 12.07% in June 2021 because of soaring global prices of crude oil and manufactured goods. The index softened from the high of 12.94 per cent but was still elevated due to a low base recorded in 2020.
• Review from FinMin: The monthly review from the Finance Ministry drew how healthy monsoon showers, unlocking of states and gradual rise in Kharif sowing is expected to loosen food inflation and in turn the headline inflation. The low base effect answers for the high figure as the WPI contracted by 1.8 percent in June 2020 in the light of pandemic & lockdown restrictions.
• What is CPI figure: The Consumer Price Index (CPI) that measures the Retail Inflation slightly receded to 6.26% in June from 6.3% recorded in May; contrasting to the expected figure of 6.6% projected by pollsters. The WPI Food Index decreased to 6.6% in June from 8.11% recorded in May, 2021. Post the propulsion of demand globally, rising costs of fuel and hardening global commodity prices directly reflect in the domestic inflationary numbers.

1. The high rate of inflation in June 2021 is primarily due to low base effect and rise in prices of mineral oils viz. petrol, diesel (HSD), naphtha, ATF, furnace oil, etc. and manufactured products, according to data.
2. The monthly review from the Finance Ministry also pointed out how global demand-led recovery in prices of goods and input cost pressures give room to risks.

• Third wave: Even though the second wave has ebbed in India, the increased presence of the Delta variant and the subsequent mutations of the coronavirus makes the third wave a real risk. The pace of vaccination has slowed down to under 3.4 million doses daily from 4 million earlier and also as many as 45 per cent of the daily infections are being reported from rural areas. Economic activity has improved sequentially for the seventh consecutive week to July 12, as some states have gradually eased mobility restrictions. In over 20 per cent of the districts where the cases have bottomed on daily bases new cases till last week, going by the new cases it is clear that third wave has firmly set in. All this will impact inflation, going forward.
• Knowledge centre:

1. CPI inflation - Inflation can be described as the general rise in the price of goods and services in an economy over time. It’s calculated by tracking the increase in prices of essentials. The primary index that tracks the change in retail prices of essential goods and services consumed by Indian households is the Consumer Price Index or CPI. The index assigns different weights to various goods and services in the basket and tracks the movement of their prices. It also tracks the price movement of the entire basket on a pan-India level to calculate the overall inflation figure or CPI inflation.
2. WPI inflation - While retail inflation looks at the price at which the consumer buys the product, WPI is measured based on prices at the wholesale level. There are two layers between the wholesale price and retail price - one is the additional cost of transportation from the wholesale to the point of sale, and the other is the retail mark-up. The WPI basket is composed of three groups: Primary Articles (22.62% of total weight), Fuel and Power (13.15%) and Manufactured Products (64.23%). A key difference between the two indices is that the wholesale market is only for goods, you cannot buy services on a wholesale basis. So WPI does not include services, whereas the retail price index does. While CPI is the most relevant index for the consumer as it shows the increase in their actual outgo, it is not a completely accurate cost of living indicator since it focuses on certain goods and services more than others.

 

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