The CPI inflation for June 2020 at 8.4 percent came as a breather, but it may not necessarily be start of a definitive trend, yet. Global price shocks aside, there is enough juice in the Wholesale Price Index (WPI) to keep Consumer Price Index on its toes. The WPI hit its highest in well over two years in May 2021 at 21 percent and continues to remain in high double digits.
Wholesale goods eventually make it to the retail market, and the impact on retail prices is only inevitable. The extent and timing of the same can vary depending on what is driving the wholesale prices. Perishable agricultural group prices, food group commodity driven products, and energy rates – usually have very quick lead time in terms of impacting retail prices.
So, what has been driving WPI of late is of significance to gauge the possible impact on retail prices and the lead time. Transportable goods have led the way for three consecutive months in terms of contribution to WPI. The sub-group has the second highest weight in the WPI basket. Nearly one-third of it constitutes of petroleum prices which have shown considerable increase over last year, despite the government’s efforts to minimize the increase.
By 2HFY22, one should expect the high base to come into play and arrest the increase in petroleum prices on year-on-year terms. High fuel prices tend to trickledown to other two-thirds in the transportable goods’ group generally with a lag. In most cases, the price increase is irreversible.
The most telling case is that of textile, consistently returning 20 percent increase in the last four months – up from the average 5 percent increase in the previous 24 months. The corresponding category for CPI has not yet shown the increase with the same vigor, but early signs are there in double digit increase in most sub-categories. Unless retailers take a hit on the margins, expect the trend in textile retail prices to gather more steam going forward. The CPI does not have the most straightforward relation with WPI, but the broader trend generally stays in line.