Deciphering the rise in the wholesale price index

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The March 2022 Wholesale Price Index (WPI) reflects a four-month high of 14.55% due to disruptions in the global supply chain leading to higher prices for crude oil, natural gas, oils minerals and base metals. Mint analyzes the numbers.

What does WPI data show?

The WPI, which has been in double digits for 11 months, rose to 14.55% in March from 13.11% in February. Retail price inflation in March peaked at 6.95%, well above the Reserve Bank of India’s (RBI) tolerance band. The WPI measures price increases at wholesalers and only takes into account price increases for goods, while the Consumer Price Index (CPI) measures price increases at retailers and takes account of price changes. prices of goods and services. WPI has a maximum weight of 64.23% for manufactured goods, while CPI’s maximum weight of 45.86% is assigned to food and beverages.

What changes have been observed in the WPI basket?

The WPI basket has weightings of 22.62%, 13.15% and 64.23% for commodities, fuel and electricity and manufactured goods, respectively. The surge in inflation is due to disruptions in the global supply chain, which have led to higher prices for crude oil, natural gas, mineral oils and base metals. Fuel and electricity prices increased by 34.52%. Food prices of primary and manufactured products increased by 8.71% in March, while the food items segment in primary products recorded an increase of 8.06% in March, compared to 8.19% in February , reflecting the decline in vegetable prices in March of 19.88%. .

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Trend anomaly

What change is proposed in WPI data collection?

WPI aims to measure dynamic price movements in wholesale purchases by traders. To take into account structural changes in the economy, it is proposed to change the reference year from 2011-2012 to 2017-2018 and to revise the basket of items from 697 to 1,176 to include products such as plants medicines, thumb drives, gym equipment, and elevators.

Why is the composition of the data changed?

The representative sample of goods would then be more reliable and relevant to current production trends. The WPI will better reflect the trend of price changes of most intermediate goods or raw materials and reveal its impact on the cost of production, indicating the likely change in cost inflation. Thus, inflationary pressures in terms of WPI, which are addressed primarily through government supply management, can best be combated through appropriate fiscal policies.

What is the anomaly in the WPI and CPI trends?

The WPI trend should ideally be reflected in the CPI as well. But the WPI was recently seen to increase at more than double the rate of the CPI. Does this mean that retailers have not passed on the cost of the products? It could also mean that the prices of certain products are not reflected in the CPI. The classic case is where the government buys foodgrains at the minimum support price and distributes them free to the poor.

Jagadish Shettigar and Pooja Misra are faculty members of BIMTECH.

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