WPI showing no respite

Wholesale Price Index (WPI) stayed near all-term high, almost unchanged from last month, at 38.6 percent. Recall that the WPI rally stated well before the CPI entered double digits. It was exactly a year ago in June 2021 when the WPI broke the 20 percent barrier – and the CPI prices have not looked back, since. FY22’s WPI at 25 percent was the highest in nearly half a century. The base for WPI will stay considerably higher throughout FY23, but it promises to still remain well in the high teens, if not higher.

The biggest contribution to WPI is expectedly coming from transportable good prices – which have shot up by a massive 86 percent year-on-year. With a weight of 22 percent in the WPI basket – the contribution to WPI growth form transportable goods is more than half. High Speed diesel has the lion’s share within the sub-category, and shows the highest increase. There may be some respite going forward in gasoline prices, but HSD is still catching up, as the Petroleum Levy still falls short. Unless there is a massive correction in global oil prices, petroleum prices are likely to stay considerably higher year-on-year, even if they drop from the current all-time highs. Currency depreciation and higher taxation will both ensure prices at pump do not recede anytime soon.

Furnace oil, chemicals and cement prices make the rest of transportable goods – and that usually feeds into the retail prices, given how the supply chain works. The next round of WPI promises to be carried by increase in electricity and gas prices. Commercial tariffs for electricity have already been increased, and will continue to go up in a staged manner for 1QFY23. LNG prices have a higher weight in the basket than electricity – and as winters approach – and Europe continues to grapple for gas – another tough six months could well be upon us, both, in terms of LNG availability and prices. The CPI may or may not have peaked already, but it surely will not go down in a hurry – from what the WPI tells us.