WPI: Non-food prices take over

The Wholesale Price Index (WPI) registered another month-on-month increase – for the fourth month running – clocking in at 26.4 percent for September 2023. While there is an emerging consensus that the peak is well behind us, there are still no signs of wholesale prices cooling off anytime soon – as the year-on-year growth hit a four-month high. Mind you, this comes off a relatively high base of 39 percent from last year.

The WPI composition has altered significantly over the past few months. Agriculture produce with the single largest weight of 25 percent in the WPI basket, recorded its lowest weighted average contribution to the index in well over four years at 14 percent – versus an average 34 percent weighted average contribution in the past four years. The year-on-year increase in the sub-index at 14.4 percent is also the lowest in 31 months. The increased cotton crop output and the slowdown in crop price are the key reasons for dragging the agriculture WPI sub-index to multiyear-low contribution. Most other key items in the category from wheat to rice, and from raw milk to unrefined tobacco – have continued to register substantial year-on-year increase.

The transportable goods’ sub-index that largely feeds to core inflation and an indirect second round impact on food inflation – continues to rise – recording an eight-month high. The rise is headlined by surge in petroleum prices, primarily high-speed diesel. Fertilizers, cement, medicines, and furnace oil – all continue to show significant increases – as high as 71 percent year-on-year. The metal group has shown no signs of slowing down either, with the most recent round of currency depreciation starting to show the impact – and it will not be long before the same gets reflected in prices at retail level.

With more upwards adjustment in line for electricity tariffs, and a likely surge in imported LNG rates as winter looms and Brent rises – expect the surge in the relevant sub-index to continue a little longer. The actual impact of electricity price increase is much more pronounced than what is reflected by the PBS reading of 50 percent increase in tariffs – as the authorities have done away with all forms of concessional tariffs for industrial users.

While there is some respite in cooking oil prices as international palm oil prices have come down substantially from a year ago – all other high weight WPI food items, from meat to wheat, and from milk to sugar – have shown a considerable jump. The transmission mechanism from WPI to CPI depends a great deal on WPI composition, as non-food items now headline WPI – the transmission may take a little longer than earlier episodes, but rest assured the impact will be felt on retail prices at some point, even though the peak has passed.