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Wholesale prices in February 2022 recorded 23.6 percent increase year-on-year – sixth consecutive month of WPI staying clear of 20 percent. It is no coincidence that retail prices as tracked by CPI have followed the WPI pattern, as expected. Wholesale price increase on sequential month-on-month basis has come down from 27 percent in November 2021 to 23.6 percent in February 2022.

The central bank in the latest monetary policy statement has hinted at an improved inflation outlook following the cuts in petroleum and electricity prices, notwithstanding the uncertainty rising from the Russia-Ukraine conflict. The modalities of the electricity relief package are not clear either, but early indications are that the Rs5/unit cut will not apply to industrial and commercial establishments.

Bear in mind that monthly fuel adjustments in lieu of electricity are slated to be significantly higher for the months to come. Even if the relief was to be extended to industrial category, it will still lead to higher tariffs, year-on-year. There will be some relief in petroleum prices on the wholesale front, but not much. At current crude oil rates, it is highly optimistic to expect the freeze would last till the budget. Another element of uncertainty is on the political front, which could lead to undoing some of these relief measures, should global commodity prices continue to be on the higher side.

It bears reminding that petroleum prices only have a combined weight of 7 percent in WPI. Other transportable goods such as furnace oil, fertilizer, and cement have a higher weight combined – and the bull rally in each of these items is likely to more than offset the relief impact of petroleum. In the metal category, steel has the highest weight, and international steel price suggests there is more to come on this front.

Agriculture group WPI recorded the highest increase in February 2022 at 30 percent year-on-year, and some of it is yet to reflect in retail prices.

While perishable prices may or may not reverse, there are growing concerns on output of the upcoming wheat crop. Another round of wheat price increase may well just be round the corner. Cotton output too is not anything to write home about, and the textile sub-sector has been recording 30 percent increase for some time. More of the same seems to be in store for the coming months.

There seems to be no respite on offer for wholesale prices. The same should reflect in retail prices, with varying degree of delays.


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