WPI inflation decreases in June 2022, but still above 15%

In comparison, WPI inflation declined to 15.18% in June 2022. However, this would still leave the markets disappointed for 2 reasons. First of all, despite the aggressiveness displayed by the RBI, the impact on WPI inflation was only marginal. Second, WPI inflation of 15.18% in June 2022 is off a rather high base of 12.07% in June 2021. Despite the drop in overall WPI inflation, fuel and electricity inflation is always above 40%.

How is WPI inflation different from CPI inflation and why is it politically important? The fundamental difference lies in the weightings in the basket. While CPI inflation assigns the highest weight to the food basket, WPI inflation assigns a 64.23% weight to manufactured goods. Thus, WPI inflation becomes a better measure of production costs. In the current global scenario, where supply chain constraints are driving inflation, WPI inflation paints a better picture. Even from a political standpoint, the RBI would only breathe easy when WPI inflation subsides.

Double-digit WPI inflation for 15 consecutive months

June 2022 not only marked the 15th consecutive month of double-digit WPI inflation, but also the third consecutive month of WPI inflation above 15%. But there is some respite from the 31-year high WPI inflation reported in May 2022. WPI inflation was triggered by the war in Ukraine, Russian sanctions, China’s lockdown and monetary tightening.

Data source: Office of the Economic Advisor

One concern is the upward revisions to previous estimates of WPI inflation. WPI inflation estimates for April 2022 have been raised by 30 basis points, from 15.08% to 15.38%. This opens the possibility that the WPI inflation for May 2022 and June 2022 will be revised upwards.
On an annual basis, manufacturing inflation decreased from 11.39% in April 2022 to 10.11% in May 2022 and to 9.19% in June 2022. Given that manufacturing has a weighting of 64.23% in the WPI basket, it will keep overall WPI inflation in check, but food and fuel are major risks. In the WPI global basket; only onions and pulses show negative WPI inflation.
The highest producer inflation in June 2022 was for crude oil at 77.29%, vegetables at 56.75%, LPG at 53.20% and potatoes at 39.38%. The overall narrative hasn’t changed much over the past few months. The ongoing war in Ukraine and COVID restrictions in China only add to supply-side bottlenecks.

How the WPI components have gone over the past 3 months

Product set


Jun-22 WPI

May-22 WPI

Apr-22 WPI
Primary items 0.2262 19.22% 19.71% 15.18%
Fuel and power 0.1315 40.38% 40.62% 38.84%
Manufactures 0.6423 9.19% 10.11% 11.39%

WPI inflation





food basket





Data source: Office of the Economic Advisor

Surprisingly, primary basket inflation continues to be elevated. The inflation spike in primary items is more pronounced in the food basket and less in minerals. Primary items inflation increased from 15.18% in April 2022 to 19.22% in June 2022. At the same time, primary food inflation increased from 9.13% in April 2022 to 12.41 % in June 2022. This is an important trigger that keeps the overall WPI inflation high.

Between April 2022 and June 2022, fuel inflation rose from 38.84% to 40.38%. The surge in gasoline and diesel prices has not kept up with the surge in crude oil and this can largely be attributed to cheap Russian imports of crude oil, which enters India at a 20% to 25% discount on the international market. crude price.

On the positive side, manufacturing inflation fell sharply from 11.39% in April 2022 to 9.19% in June 2022. Clearly, the RBI-forced tightening and fears of a global recession have led to a decrease in manufacturing inflation. In context, this matters much more since manufacturing has a weight of over 64% in the overall WPI basket. It looks like a situation where higher prices combined with fears of recession are keeping demand for manufactured goods subdued. This is the dark side of WPI inflation.

A quick look at high-frequency WPI data for June 2022

While WPI inflation is usually presented on a year-over-year basis, it adds value to also check MOM WPI inflation as it captures high frequency trends much better.

· For June 2022, MOM WPI headline inflation was absolutely stable at 0.00%. This is a sharp decrease in the high frequency WPI inflation rate from 2.48% in the month of March 2022 to 0.00% in June 2022. There is a sharp decrease in inflation momentum in June 2022.

· MOM data captures short-term momentum. To get a clear picture of the pressure point, look at the inflation of the primary articles. Within the primary items basket, while the overall primary basket has declined DOM, the primary foods index has not declined much, indicating that much of the near-term pressure is coming from agriculture .

· In June 2022, manufacturing inflation on a MOM basis turned negative to -0.76%. It has fallen steadily since a peak of 2.45% in March 2022. Even if you look at fuel and electricity inflation, it has fallen sharply from 5.07% in April 2022 to 0.65% in June 2022.
DOM numbers better reflect short-term trends, but they also tend to be vulnerable to short-term base effects. The message is that the key pressure is still in the main basket.

Why would the RBI be more concerned about WPI inflation?

Between April 2022 and June 2022, consumer inflation (CPI inflation) decreased from 7.79% to 7.01%. During this period, WPI inflation fell from 15.38% to 15.18%. RBI raised repo rates by 90 basis points in May and June 2022 and CRR by 50 basis points. This had an impact on CPI inflation, but the impact on WPI inflation is limited. WPI inflation represents a lot of imported inflation and requires lower prices internationally and smoother supply chains.

Q1FY23 corporate results are just starting to come in and early indications from the IT sector indicate that operating margins are under pressure. We saw this pattern in Q3FY22 and Q4FY22 and this pattern is likely to repeat in Q1FY23 as well. The message from the WPI figure is that monetary levers may have played their part and that more fiscal measures will be needed to curb WPI inflation. With the pressure on government revenues, this would be a difficult decision for the government.


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