Overall wholesale prices increase by 12.96% while food inflation touches a 2-year high in January

The wholesale price-based inflation, based on the Wholesale Price Index (WPI), eased to 12.96% in January. After a record high of 14.87% in November, the WPI, which measures what producers charge retailers, declined for two consecutive months in Dec'21 and Jan'22.

The wholesale inflation has remained in double-digits since the start of the financial year 2021-22. While prices of a few commodities reduced, the food prices increased at their fastest pace in 2 years keeping the overall wholesale inflation levels high. The wholesale inflation figures follow close on the back of 6.01% in CPI-based retail inflation for Jan'22 announced today.

The widening gap between WPI and CPI inflation reflects the price pressures on the inputs side which would eventually force producers to pass on the higher input and freight costs to the consumers. Many manufacturers across industry sectors have so far tried to absorb the higher input costs incurred by them but may now just begin to pass on the burden to customers as they struggle to maintain the status quo, thereby causing a rise in retail prices. The RBI, in its bi-monthly monetary policy meeting last week kept its interest rates unchanged for a record 10th session (over 20 months). The continued increase in wholesale and retail prices and the rising international crude prices may keep up the pressure on interest rates prompting RBI to reconsider its stance on keeping interest rates low to support growth in its next meeting in April 2022.

Petrol and LPG price-based inflation were higher at 62% and 51.7% respectively. Inflation in manufactured products, the biggest category in the WPI index, decreased for the third consecutive month to 9.4% in Jan'22. Within manufactured products, the wholesale prices of basic metals increased by 16.3%, paper & paper products by 14.2%, chemicals and chemical products by 13.7%, and textiles by 13.7% in Jan'22.

Wholesale Food Inflation

WPI has a sub-index called Food Index (WFPI), which is a combination of the Food Articles from the Primary Articles basket, and the food products from the Manufactured Products basket. As a sub-index, it broadly constitutes 24.4% of the overall Wholesale Price Index.

The Wholesale Food Price Index rose to a 2-year high of 9.55% in Jan'22. Wholesale prices of vegetables were higher by 38.5%, fruits by 12.5% while the prices of wheat increased by 10.4%.

Reference Reading

What is wholesale inflation?

Wholesale inflation is based on the Wholesale Price Index (WPI) which measures the changes in the price of 697 goods sold and traded in bulk by wholesale businesses to other businesses. Analysts use the numbers to track the supply and demand dynamics in industry, manufacturing, and construction. An upward surge in the WPI print indicates inflationary pressure in the economy and vice versa. The quantum of rise in the WPI month after month is used to measure the level of wholesale inflation in the economy. The wholesale price basket is broadly grouped into Primary articles, Fuel & Power, and Manufactured Goods.

• Primary articles: It constitutes 22.6% of the overall Wholesale Price Index. It is further subdivided into Food Articles, Non-food articles, Minerals, and Crude Petroleum & Natural Gas
• Fuel & Power: It constitutes 13.2% of the overall Wholesale Price Index and tracks price movements in Petrol, Diesel, and LPG
• Manufactured products: This is the biggest component basket and carries a weightage of 64.2% in the overall WPI. It comprises of a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, etc and Manufactured Goods such as Sugar, Tobacco Products, Vegetable and Animal Oils, etc.