Wholesale Price Index at 30 percent for May 2022 was at least a 12-year high. And it is coming off a relatively high base of 19 percent, which was a multiyear yeah around the same time last year. WPI has averaged 23 percent in 11 months of FY22 – which is by far the highest for any fiscal year. With petrol price impact yet to kick in – expect June 2022 to end on a high note too – keeping the full year WPI average north of 23 percent. For better context, average WPI for 11 months of FY21 was eight percent.
Increase in wholesale prices almost always feeds into retail prices. When the WPI rally started to gather steam around March 2021, which is where the CPI started to heat up two months later. The lag can vary depending on the composition of WPI. Perishable food price increase at wholesale usually translates into retail without any considerable lag.
The previous WPI rally was largely caused by significant upward revision in electricity and gas prices, and the impact lasted for 12 months. This time around, the WPI rally is broad based and double-digit increases are spread across categories, from agri to textile, and from food to transportable goods. The CPI in the previous WPI bull rally peaked at 14 percent. It is almost certain, that CPI could shatter all previous records, as WPI is in no mood to cool down anytime soon – high base or not.
Come July 2022, Pakistan’s gas and electricity tariffs are going to be significantly pricier – by 40-45 percent. The impact on WPI will gradually feed into retail prices. Recall that the previous WPI rally was singlehandedly led by power and gas price increase. This time around, there is much more to support that. The CPI increase would invariably be much higher.
Mind you, transportable good, which has a 22 percent weight in WPI, has so far shown a year-on-year increase of 62 percent. With the petroleum price revision in June 2022 (and more likely to come) – don’t be surprised if this sub-group shows a 100 percent year-on-year increase for June 2022. HSD is the single largest component in the sub-group – followed by furnace oil. Expect this to feed not retail prices with some lag, but with a huge impact.