Wholesale inflation hits a 12-year high of 14.23% in November

The wholesale price-based inflation, based on the Wholesale Price Index (WPI), spiked to a 12-year high of 14.23% in November from 12.54% in October. The surge in WPI, which measures what producers charge retailers, follows a rise in retail prices announced 2 days ago.

At 14.23%, the WPI inflation is at its highest level since the introduction of the baseline index in 2011-12 and the highest since Apr 2005. The 14.23% year-on-year surge is in comparison to Nov’20, a Covid-19 pandemic affected month, and hence had the advantage of a low base effect. If compared to Nov’19, the wholesale price-based inflation in Nov’21 is even higher at 16.8%. The surge follows close on the back of a 3-month high of 4.91% in CPI-based retail inflation announced on Monday despite a cut in excise duty on fuels. The widening gap between WPI and CPI inflation reflects the price pressures on the inputs side, which are expected to pass through to the retail level in the coming months.

On the bright side, the consistent rise in wholesale prices is an indication of a rise in demand and growth recovery as the lockdown curbs are eased across the country. This renewed confidence in the economic climate could give further impetus to 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. This, in turn, will lead to a pass-through effect which will see a corresponding increase in retail inflation prompting RBI to reconsider its stance on keeping interest rates low to support growth in its meeting in February 2022.

Aditi Nayar, chief economist at rating agency ICRA, told news agency Reuters that the WPI figures for November came as an unexpected surprise. “We now forecast the WPI inflation to average 11.5% to 12% in the current fiscal year that ends in March 2022," she said.

"The high rate of inflation is primarily due to rise in prices of mineral oils, basic metals, crude petroleum, natural gas, chemicals products, and food," the Commerce and Industry Ministry said in its statement.

Petrol and LPG price-based inflation were higher at 85.4% and 65.2% respectively. Inflation in manufactured products, the biggest category in the WPI index, moved down marginally to 11.9% after touching an all-time high of 12% in October.

The core wholesale inflation touched an all-time high of 12.3% in November from 11.9% in October. This excludes the generally volatile categories of food and energy and provides a good reflection of how entrenched the current wholesale prices are.

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 6.7% in November compared to 3.06% in October.

Wholesale prices of wheat were higher by 10.1% while those of fruits were higher by 15.5%. The wholesale vegetable prices increased after at least five months of negative inflation, from -18.5% recorded in October, to 3.91% in November.

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.