The WPI scare
PremiumAlthough WPI numbers are not on our central bank’s main radar for the purpose of setting monetary policy, last month’s spike is likely to make policymakers sit up and take notice
After retail inflation, it’s India’s data on wholesale prices that has come as a rude shock. Government figures released on Thursday showed our inflation rate based on the wholesale price index (WPI) shot up to 7.39% in March from 4.17% in February. This is the highest reading in eight years. Rising fuel prices were a big driver, and these pushed up costs and thus prices of manufactured goods.
Although WPI numbers are not on our central bank’s main radar for the purpose of setting monetary policy, last month’s spike is likely to make policymakers sit up and take notice. Our wholesale and retail indices don’t always show a close link, with the former loaded more in favour of factory products and the latter bigger on food and services, and the two have seen several divergences in recent years. Yet both are measures of the same basic phenomenon, of too much money chasing too few buyables, and wholesale effects could spill over to the retail level, especially if covid disruptions of supply worsen. Some economists foresee WPI inflation hitting double digits in the months ahead. Should this happen, policymakers might face a quandary over liquidity support for our economy.
TRENDING STORIESSee All
Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.