WPI heating up

While the CPI inflation gets noticed more for obvious reasons, the oft-ignored Wholesale Price Index (WPI) is foretelling a worrying tale if you are looking onto what the CPI holds in future. Establishing statistical correlations and regressions is best left to whom it suits – just a cursory look at the WPI movement tells things are heating up. The 13 percent inflation projection for FY20 could even be understated, from the look of things.

Of the WPI basket of goods, electricity and gas account for nearly 12 percent of the weight. Ever since the October 2018 gas price revision, the sub-index has shown an annual growth of 20 percent, contributing the most in terms of impact after food sub-index, which has a considerably higher weight. Gas prices for commercial users went up by 40 percent in October 2018 – and the change reflected in WPI gas prices is around 49 percent, which is a fair enough reflection, unlike that of the CPI gas price methodology.

Now with gas prices having been revised upwards again effective from July 1, to the tune of 31 percent for commercial users, expect the WPI index to rise sharply. The increase could be close to 80 percent for the first quarter FY20, given the last increase was in October 2018. The WPI at 12 percent average in FY19 is already the highest in at least a decade – and there are no signs of it slowing down.

The impact on non-food inflation is almost instant, while that on general inflation comes with a lag, and it is going to be a matter of a month or two, before the CPI enters double digits, and stays there for some time. Don’t forget the electricity prices have also gone up for all users, including commercial. But the PBS strangely shows a negative 1.4 percent change in WPI electricity prices, which is baffling to say the least. Recall that electricity tariffs for commercial entities went up in double digits in January 2019, but there is no reflection of that in WPI numbers.

Be that as it may, even without giving electricity price its fair share in WPI, the index is sure to surge to new highs. With diesel and petrol prices all set to go north, as the GST and PL targets have been both revised upwards substantially, expect no respite on that front either. The petroleum products also have a sizeable share of around 8 percent in the WPI basket. The PBS though, would do well, explaining how the electricity column shows a negative change in prices. All said, it is now a matter of when and not if, for the inflation dragon to flex its muscles and stay around for a bit.