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If petroleum prices don’t get you, energy prices will. This has been the story on the inflation front of late. The latest Wholesale Price Index (WPI) change for December 2023 at 27.3 percent year-on-year was the highest in seven months. The average WPI for 1HFY24 now stands at 25.35 percent, down a massive 9 percentage points from the same period last year. Month-on-month, there was a respite as WPI stayed largely unchanged, showing a drop of just 0.02 percent from November 2023.

The composition of WPI today is entirely changed from a year ago – as administered changes in electricity and gas prices have taken charge. With a 12 percent weight in WPI basket –the sub-group’s weighted contribution in December 2023 stood at 28.5 percent – highest since the peak Covid quarter of 4QFY20. The last two months are also the first times in over 40 months that electricity and gas prices have the highest weighted contribution to WPI.

On a month-on-month basis, power tariff adjustments on account of significantly higher FCA adjustment took center stage, after the colossal rise in gas tariffs a month ago. With recent quarterly adjustments made and monthly FCAs sought – more of the same is in store for 3QFY24 to keep the electricity rates up across industries. Any increase in natural gas prices is not likely in 2HFY24 despite the petition in the field and would take nothing short of a fresh IMF program’s pre-condition for that to happen. That said, energy prices are only destined to go one way and that is north – despite (and regardless of) considerable softening in international energy commodity prices.

The transportable goods category has offered the biggest respite on a month-on-month basis, as furnace oil, petrol and HSD prices have come down considerably from the highs not long ago. But that has not transmitted into retail prices, given the downward sticky nature of most consumer goods’ prices. Case in point is the CPI transport services, which went up 12 percent month-on-month in December, despite three consecutive month-on-month decline reported in motor fuel.

Fertilizer and cement wholesale prices have of late started to surge again – as the recent surge in gas prices for industrial use is going to have a fresh round of increase in production costs. Textile wholesale prices have stayed largely in check, but that may soon change as well, given energy input prices. It is pertinent to note here that the WPI composition does not consider RLNG prices – which are very odd, given the ever-increasing use of RLNG for industrial use.

All in all, WPI is well past its peak but there are indications that a few sub-groups are again showing signs of heating up – and the impact on retail prices will follow. Administered energy prices have taken over from agriculture produce and food prices and will continue to drive retail prices for 2HFY24.

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