The Food Factor: Fine Print of CPI & WPI

By: Damini Mehta

The CPI or the retail inflation index eased to a four-month low in October from a year long high of 7.44 per cent in July 2023.

Inflation and price rise have always been sticky points in the Indian economy and the general public’s consciousness. The issue gains special relevance in election time and has the ability to dominate the narrative in both national and state elections. The Indian government recently released the Consumer Price Index (CPI) numbers, which is also commonly known as the Headline Inflation given its ability to gather headlines across platforms. The CPI indicates change in prices of products and services at consumer or customers’ end. The other type of inflation in India is evaluated through the Wholesale Price Index or WPI. As the name suggests, WPI measures the change in prices for raw materials used in production of goods and concerns the wholesalers or manufacturers.

            Source: PIB

According to the recent data, both WPI and CPI continue to be on a downward trend in 2023. The WPI remained negative  for the seventh consecutive month since April 2023 when it came down to (-)0.92 per cent. Month-on-month too the WPI has halved from (-)0.26 per cent to (-)0.52 per cent between September and October 2023. Whereas the CPI also declined month-on-month in October 2023 to 4.87 per cent, the indicator, which has a bearing on the prices of goods and services that directly impact the final consumer, remains above Reserve Bank of India (RBI)’s acceptable target of 4 per cent. The CPI or the retail inflation index eased to a four-month low in October from a year long high of 7.44 per cent in July 2023.

A closer scrutiny of the retail and wholesale inflation points towards an interesting development across sectors of the Indian economy. The deflationary trend in the WPI is driven by manufactured products, fuel and power categories. The uptick in the wholesale price indicator is primarily due to the positive WPI inflation in food prices led by cereals, vegetables and protein items. Evidently, several items concerning the everyday life of a household remain to be in an upward price rise trajectory.

Source: PIB

Although wholesale inflation in food articles  eased to 2.53 per cent in October from 3.35 per cent in September, it increased by 1.33 per cent on a month-on-month basis. Within the food basket, the inflation rate for vegetables declined to (-) 21.04 per cent driven primarily by potatoes at (-) 29.27 per cent but that for onion increased by a whopping 62.60 per cent. Inflation in Pulses also increased to 19.43 per cent, while for paddy and wheat it was 9.39 per cent and 4.75 per cent, respectively. In October 2023, the fuel and power basket inflation was at (-) 2.47 per cent declining from (-) 3.35 per cent in September. According to experts, the deflationary trend in WPI might not continue in the coming months largely owing to the increase in prices of food items, a key concern for a common household.

The CPI or the retail side of the inflation index has shown trends similar to the WPI when it comes to the item basket. Core CPI inflation, which excludes food and fuel, was at a 43-month-low of 4.28 per cent in October. Since fuel is still showing deflationary trends (minus 0.39 per cent), food prices remain a cause of concern in this basket. At 6.61 per cent, food inflation was higher than the general CPI inflation. Within food, just as in WPI, vegetables remain the more volatile component in CPI too and are prone to seasonal supply shocks. This was seen in the case of tomatoes in July-August and for onions more recently. However, vegetable prices often self-correct with fresh crop arrivals and inflation in vegetables already plunged from 37.4 to 2.7 per cent between July and October.

Source: PIB

Noting this change, the Reserve Bank of India (RBI) Governor Shaktikanta Das, highlighted the vulnerability of headline consumer price index (CPI) inflation due to “recurring and overlapping food price shocks”. Evidently, while other segments are recording some ease in prices, items that have a direct impact on the final consumers’ pocket continue to bother with rise in prices.

Another key component of the CPI food basket which is a cause of a headache both for the RBI and the governor concern the cereals and pulses or the dal-roti segment. At 10.65 per cent retail cereal inflation, has been in double-digits for 14 consecutive months since September 2022. Pulses too recorded a double digit price rise for the last five months with the current inflation at 18.79 per cent, highest since August 2016.

Given the interconnectedness of the global economy, prices of products and services are affected by both localized factors such as a bad monsoon and geopolitical developments like the Russia-Ukraine war. Products and services across segments have shown some improvement in prices but items that concern the everyday Indian household such as food continue to put a hole in the pocket of the consumer. The RBI and government’s maneuvers and expert speak will be of no use if prices of items that concern a household on a daily basis are not kept in check. Big promises in an election year especially prior to the Lok Sabha battle in 2024 might be vain if the common man’s pocket remains dented with high prices.