The wholesale inflation index (WPI) across the country hit a 12-year record as it spiked to 14.23 per cent in November 2021, as compared to 2.29 per cent in November 2020, showed data released by the Ministry of Commerce and Industry. WPI has witnessed a sharp rise from the beginning of the year as it rose by 12.9 per in a year (from January till November).
Retail inflation was at a three-month high in November. WPI grew to 12.54 per cent in October 2021, while it was at 11.80 per cent in September and 10.66 per cent in August, the data showed. “The high rate of inflation in November 2021 is primarily due to the rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products etc as compared to the corresponding month of the previous year,” the ministry’s release said.
Why Is Inflation Growing?
Economists told Outlook Money that there are multiple factors that are leading to growing inflation, and it may not be monitored on a national level .
In the recent Reserve Bank of India (RBI) monetary policy, the primary focus was on growth, so the concern for inflation has persisted among consumers (previous story link).
The central bank let the repo rates and reverse rate unaltered, as growth was their primary focus and warned of risks from inflation amid the looming risk of Omicron.
Price Movement
While there has been a consistent rise in the overall WPI (y-o-y), there has been a sharp decline in WPI for various food times like onion and potato. WPI for onion and potato plunged by around 30 per cent and 50 per cent, respectively, between November 2020 and 2021.
But sectors like fuel and power witnessed a sharp rise as prices rose 39.81 per cent on the year versus 37.18 per cent in October, while prices of manufactured products rose 11.92 per cent against 12.04 per cent in the prior month.
Gap Between CPI and WPI
Recently, there has been a growing gap between consumer price index (CPI)-based inflation and WPI inflation. CPI increased 4.91 per cent in November as compared to the corresponding month last year, government data released on December 13 showed.
“We witnessed a reverse situation in the past when WPI was significantly below CPI. In 2020 during the onset of the pandemic when global demand saw a steep fall. This divergence led to convergence via WPI trending close to CPI as commodity prices recovered,” says Anitha Rangan, an economist. She clarifies that producers will continue to pass on the price increase to consumers.
“Consumer price inflation will eventually see a second order impact. Structurally, core CPI (CPI excluding food and fuel) has been moving upwards and is sticky. Reversal in food inflation bears an upside risk to CPI. On the WPI side, as global supply chain improves commodity prices may cool down eventually softening WPI,” says Ajay Garg, managing director of Equirus, a financial services firm.
