While the last two years have piled on a misery of historic proportions on retail prices, the seeds were sown a year before the riot started, as the WPI started to heat up. In that context, it comes as a massive relief that the Wholesale Price Index (WPI) for March 2024 registered a year-on-year growth of 14.78 percent – a 37-month low, and only the second sub-20 reading in the last 30 months.
The WPI composition today is spearheaded by administered energy price changes – as electricity and gas with a combined share of 11 percent in the WPI basket constitute nearly 42 percent in terms of weighted contribution. Save for the Covid quarter of 2020, gas’ weighted contribution at 24 percent is the highest in a decade. A considerable decline in international commodity prices and a good stretch of stable currency have both helped curtail contributions from metal and transportable goods’ categories – both of whom were the main drivers of WPI rally for much of the past two and a bit year.
No one is looking for fresh peaks anymore. That is well and truly past us. But the recent month-on-month movement in WPI does suggest pressure will remain on retail prices in the months to come. This time around, the transmission from wholesale to retail is likely to happen with a considerable lag, as industrial energy input prices form the core of WPI today.
Shockingly, the Pakistan Bureau of Statistics (PBS) has for the umpteenth time failed to factor in actual changes in energy prices. This time, it is the PBS’ disregard for changes in consumer end natural gas prices for industrial usage that has resulted in substantial underestimation of month-on-month change. Recall that Ogra had issued notification for revised prices for gas consumers in the middle of February, with effect from February 1, 2024. One gave the benefit of doubt that a middle of the month change may be looked into a month later. But that has not happened.
As per the methodology of price statistics, only one category for industrial usage that falls under “general” industries is used to compute price changes for WPI purposes. February’s WPI month-on-month reading showed a 2.3 percent decrease in natural gas prices, which is reflective only of the slight reduction in prices for general industry process gas, as per Ogra notification of February 2024. The same notification, and the one in November 2023, had in fact seen gas prices for other industrial users go up considerably – most prominently for captive power generation, for both domestic and export oriented industries. Another much more sizeable increase has been slapped on fertilizer feedstock gas consumption – which does not get the chance to feature in WPI changes.
Now just because the WPI fails to capture actual changes in price change for industrial gas consumption, the CPI would not fall in line with PBS’ shortcomings. The current WPI reading may not offer enough heating signs to foresee what is in store for retail prices – but it is certain that an increase of this magnitude at the wholesale stage will invariably be transmitted to retail – with varying degrees of lag.
With the authorities all set to operate under a bigger and longer IMF program for pretty much the entirety of the government tenure – pressure eon administered energy prices will stay elevated, and any concessions for any particular group of industries are less likely. The high base may mask it but be ready for another CPI rally sooner or later. Only that the WPI readings may not warn you enough this time.
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