In India, the wholesale price index, or WPI, captures the average movement of wholesale prices. It is often used as a deflator in the calculation of the country’s GDP, and it accounts only for the basic price of goods and services without considering the price of trade discounts, tax rebates, and transport and energy costs. While recent government data showed that retail inflation was declining, the June 2022 report shows that the pace of retail inflation remained high and the potential for further increases is increasing.
The official WPI for goods and services in May 2022 remained high, at 15.3%. However, this is a sign that the government’s supply-side measures are starting to have an effect. The import duty cuts and ban on exports of wheat are already having an effect on prices. Meanwhile, the price of domestic LPG declined sequentially in June, following trends in global markets. Moreover, the recent fall in global commodity prices could help in easing the rising inflation trend. The June WPI inflation for manufacturing products increased 9.2 percent y/y, while the price of fuel and power items rose 40.4%.
Manufacturing WPI inflation in India fell to -0.76% in June 2022 from a high of 2.45% in March. Inflation rates are usually measured yoy, but high-frequency, MOM, inflation numbers capture short-term momentum more effectively. In March, the manufacturing WPI was flat at -0.06%, while the fuel and power WPI rose by 2.45%. Overall, the primary basket is under pressure, so it is important to monitor both yoy and MOM WPI inflation for India.
While India’s annual WPI inflation stayed below 15% in June, the central bank indicated that more rate hikes would be coming. The central bank will pause and assess the momentum of the economy before deciding to hike the repo rate further. The economic growth rate is expected to remain strong, but the RBI has come under fire for being behind the curve in inflation control.