The near euphoria on CPI readings falling from the expected peak is bordering ridiculous. Consider that the 29 percent year-on-year CPI growth for June would have been a 50-year high just five months ago. Wholesale Price Index (WPI) too has come down to a 20-month low at 22 percent for June 2023. Mind you the low comes from a base as high as 39 percent – which was an all-time high back then, and has only been surpassed once since.
Nonetheless, the peak is well behind us. But the transmission from wholesale to retail price may well be a slightly different story this time around, looking at the composition of WPI weighted contribution. Most agri-based products that include heavyweights such as milk and wheat, and the transportable goods category that is headlined by furnace oil and HSD – have an almost immediate transmission to retail prices, but numbers beyond these categories still indicate the transmission to retail level is yet to happen, and the CPI will take its sweet time before cooling down, from what is still a very high reading.
With the IMF back in frame, another round of price increase in electricity and gas across categories is on the cards. The timelines will be clear once the country report is out, but indications are that tariff revisions will be done sooner than later – taking some of the sheen off the high base. Petroleum prices will continue to be watched closely as PL limits have been raised and international crude oil prices remain stubborn. Mind you, a big chunk of WPI transportable goods’ categories is based on furnace oil – the use of which has come down drastically in the past 18 months – and would have little to no impact on retail prices.
The textile sub-index continues to be on the rise, with readymade garments posting the highest ever increase of 48 percent year-on-year in June 2023. The trickle down to retail is much slower in case of apparel, but with no respite in cost of business for garment manufacturers in sight –the transmission to retail will eventually take place. There are early signs already with CPI reading of readymade garments showing a year-on-year increase of 22 percent for June 2023 – comfortably the highest ever. Expect his to continue as the base effect is one month away – and there are more chances of textile RM manufacturing costs getting higher during the IMF’s standby arrangement.
Even on the food front, prices have stayed elevated for most items, shattering records month after month. The June month-on-month respite, besides the high base of petroleum products, also stems from significant price reduction in wheat and wheat flour prices. Only that wheat flour prices were back to May 2023 levels as per the latest June weekly SPI recordings – and that is likely to reflect in July’s numbers. Recall that CPI food prices are recorded between the 12th-14th of every month, and this time around it coincided with an abrupt reduction in price – which was reversed in a week’s time. All in all, the heat is still on – even though the intensity has lessened.
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