Macroscope – WPI Inflation For The Month May 2021

What is the latest WPI reading?

India’s wholesale inflation rises to all time-high figure at 12.94% after touching its highest figures in last 11 years at 10.49% in the month prior. It is primarily due to low base effect and rise in prices of crude petroleum, mineral oils viz. petrol, diesel, naphtha, furnace oil etc. and manufactured products on a YoY basis. Pass-through into consumer prices may seem inevitable if expected normal monsoon does not materialize.

WPI maintained its record of positive figures, signaling producers regaining pricing powers. Food inflation edged up to a 16-month high of 8.1% in May’21 from 7.6% in Apr’21. It carries much higher weight in CPI (39.06%) compared with WPI (24.4%).

Element Inflations (Y-o-Y Readings)

Buildup of pricing pressure amid supply chain disruptions amidst the second wave of Covid-19 pandemic has contributed heavily to the rise in inflation on the wholesale level. Core inflation rose to its highest level in 2011-12 series at 10.0% in May’21 from 8.4% in Apr’21.

Manufactured products inflation rose by 1.24% vs month prior, equaling to average monthly growth of 1.22%. Of the 22 commodities, prices of 17 commodities rose, with basic metals, rubber, food, steel and chemical products charging up the figure. Firming up of international commodity prices by another 1% in May’21, and unfavorable base till Sep’21, is expected to keep manufactured product inflation elevated. The increased contribution of these items to WPI stands at 72.6% during February-April 2021 vs -34.4% during September-November 2020.

As pressures on perishable food prices ready for a go on the downside, other factors such as supply-side disruptions, and higher labor charges can dampen hopes of drop in inflation in coming times. The disruptions at primary mandi level may further add insult to injury in narrating the diminishing impact of multiplier effect.

The higher WPI reading over CPI for third consecutive month highlights the greater impact of supply chain disruptions at the wholesale level. Even though WPI and CPI comprise of different constituents, the rising wholesale prices of overlapping items (such as certain food items) indicates tougher times for its consumer counterpart in
times to come.

Post-covid clarity and supportive govt. policies will be instrumental in charting demand- &-supply discipline, and hence printing WPI expectations in near-term. RBI to ensure successful transmission of rate cuts, before taking any further action in rate cuts.

An interesting observation lies in collaborative reading of PMIs with rising WPI, highlighting much-awaited input price pressure. “Inflation trajectory over the rest of the year will be shaped by the Covid-19 infections and the impact of localized containment measures on supply chains and logistics,” says RBI Governor Shaktikanta Das.

Click here to read Office Of Economic Advisor’s original press release on “Index Numbers of Wholesale Price in India for the month of May, 2021″