Central bank signals risks of double-digit WPI putting pressure on retail price inflation

The Reserve Bank of India (RBI) on Friday signaled risks of double-digit wholesale price inflation putting upward pressure on retail inflation, albeit with a time lag.

In its annual report for FY22, the central bank said: “The substantial gap between wholesale and retail price inflation amid a sharp rise in manufactured goods inflation poses the risk of possible transmission of input cost pressures to retail inflation with a lag. , although the slowing economy is dampening the transmission. »

Wholesale price inflation reached 15.08% in April, its highest level since September 1991, after posting double-digit growth for the 13th consecutive month. Meanwhile, consumer price index (CPI)-based inflation hit an 8-year high of 7.79% in April and broke through the upper range of the RBI’s medium-term target. for a fourth consecutive month.

Of course, the divergence between the two price indicators is partly due to different compositions (food weighs nearly 46% in the WPI, while the WPI is dominated by manufactured goods).

The report says soaring commodity prices due to the conflict in Ukraine have clouded the outlook for inflation in India as in the rest of the world. He warned that cost pressures from high industrial commodity prices, transport costs and global logistics, as well as supply chain bottlenecks continue to weigh on inflation under -lying.

The direct pass-through from world commodity prices to the Consumer Price Index (CPI) is lower than via the Wholesale Price Index (WPI), with a longer transmission lag in the case of non-food non-energy (or underlying) inflation, according to the report. A 1% change in world non-food and non-energy commodity prices results in a 0.02% change in core CPI inflation and around 0.11% in core inflation of the IPM.

On the other hand, a 1% change in core CPI results in a change of about 0.26% in core CPI inflation. the impact on the CPI core is more persistent,” the RBI said.