Thursday, 10 Oct, 2024
By: Yash Gupte
The wholesale price index based inflation or the wholesale inflation had peaked to 16.63 percent in May 2022 before showing a declining trend in the following months. Image Source: IANS
Wholesale Price Index tracks variations in the costs of items that wholesale companies sell and trade in large quantities to other companies. It is published by the Ministry of Commerce and Industry's Office of Economic Adviser.
The annual rate of inflation based on all India Wholesale Price Index (WPI) number is -0.92 percent for the month of April 2023 (over April 2022) against 1.34 percent recorded in March 2023. The Wholesale Price Index is published by the Office of Economic Advisor, Ministry of Commerce and Industry. As per the ministry, the reason behind a massive fall in the WPI in April can be attributed to fall in prices of basic metals, food products, mineral oils, textiles, non-food articles, chemical & chemical products, rubber & plastic products and paper & paper products. The ministry added that the month-over-month change in WPI for April 2023 over March 2023 remained at 0.0 percent. The index for primary articles increased from 175.0 (provisional) in March 2023 to 177.3 (provisional) in April 2023, an increase of 1.31 percent. Minerals (2.30 percent), Food Articles (1.45 percent), and Crude Petroleum & Natural Gas (3.47 percent), all saw price rises in April 2023 compared to March 2023.
However, prices for non-food items (-0.66 percent) decreased during the same time frame. In April 2023, the major group index for manufactured goods remained constant at 141.2 (provisional). The Fuel & Power index declined by 2.68 percent to 152.6 (provisional) in April, 2023 from 156.8 (provisional) for the month of March, 2023. Prices of Coal (-0.22 percent), Electricity (-2.20 percent) and Mineral Oils (-3.33 percent) declined in April, 2023 as compared to March, 2023.
In the category of primary articles, WPI based rate of inflation for some components like potato, onion, vegetables and oil seeds has dropped significantly. The WPI based rate of inflation for potato has dropped from 19.84 percent in April 2022 to -18.66 percent in April 2023. In case of vegetables, the rate of wholesale inflation has come down from 22.59 percent in April 2022 to -1.5 percent in April 2023. In case of Petrol, the WPI based inflation has dropped from 60.63 percent in April 2022 to 1.53 percent in April 2023. A significant reduction in inflation has also been noted in the case of LPG.
Wholesale Price Index tracks variations in the costs of items that wholesale companies sell and trade in large quantities to other companies. It is published by the Ministry of Commerce and Industry's Office of Economic Adviser. In India, it is the most often used inflation indicator. The fact that the general public does not purchase goods at wholesale prices is a major criticism of this index. In 2017, the base year for the All-India WPI was changed from 2004–2005 to 2011–12.
Source: Ministry of Commerce and Industry
The wholesale price index based inflation or the wholesale inflation had peaked to 16.63 percent in May 2022 before showing a declining trend in the following months. The wholesale inflation has dropped to -0.92 percent in April 2023, the lowest in last 30 months. The fall in April WPI comes days after the Ministry of Statistics and Programme Implementation released the consumer price index or the figures related to consumer or retail inflation in India. Experts said that a declining trend was witnessed in the wholesale inflation due to the fall in global commodity prices.
India’s retail inflation, which is measured by the Consumer Price Index (CPI), eased to 18 month low of 4.70 percent in April 2023, down from 5.66 percent in March 2023. The consumer food price inflation has also dropped down at 3.84 percent from 4.79 Percent in March 2023 and 5.95 percent in February 2023. Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services. This means that higher the CPI, higher the inflation which occurs due to the rise in prices of goods and services. The urban inflation also dropped to 4.85 percent in April from 5.89 percent in the previous month. A similar trend was witnessed in the rural inflation as it dropped from 5.51 percent in March to 4.68 percent in April 2023.
The fall in retail inflation indicates that the steps taken by Reserve Bank of India (RBI) to control the rising inflation in the country have delivered success. The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The retail inflation has come down to its lowest level since December 2021. March has been the first month in the calendar year 2023 which has witnessed the CPI falling below the 6 percent mark. According to experts, the inflation is expected to remain below 6 percent in the coming months helped by a high base, which may allow RBI to maintain pause in the next monetary policy review in June.
The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was recently increased on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
The Reserve Bank of India has put a hold to its repo rate hike spree. The Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Thursday, April 6, 2023 decided not to hike the repo rate and kept is steady at 6.5 percent. The RBI was widely expected to increase the repo rate by 25 basis points to 6.75 percent, the highest till date. The decision was announced by Shaktikanta Das, the governor of RBI in a press conference. The first bimonthly policy for FY24 was announced by the RBI monetary policy committee on April 6, concluding a three-day meeting. The MPC convened on April 3, 5, and 6 to discuss the current monetary policy, under the direction of RBI Governor Shaktikanta Das.
Source: the Ministry of Statistics and Programme Implementation
The inflation rate for food and beverages in April was 4.22 percent, while the rates for alcohol, tobacco, and other tobacco products were 3.46 percent. The inflation rate for clothing and footwear was 7.47 percent. Additionally, housing inflation in April was 4.91 percent, while fuel and light inflation was 5.52 percent. Miscellaneous inflation remained 4.92 percent. According to statistics from the Ministry of Statistics & Programme Implementation, the price information was gathered by personal visits by field employees from the Field Operations Division of NSO, MoSPI on a weekly schedule from chosen 1114 urban marketplaces and 1181 villages covering all States/UTs.
The general easing of inflationary pressures is what caused the decrease in inflation between March and April. Inflation rates for food, which make up 39 percent of the CPI basket according to data from the Centre for Monitoring Indian Economy (CMIE), have decreased from 4.8 percent to 3.8 percent.
Nishi Bhatt, Founder and CEO of Millwood Kane international indicated that the RBI won’t be hiking the repo rate in near future. He said, “Going forward, a steady price trajectory of crude oil and a good monsoon year will help keep inflation in check. This is the last inflation print before the MPC meets for its review meet in June. The development will help the central bank to stay on an extended pause."
