With wholesale price inflation (WPI) running in double-digits, the Economic Survey 2021-22 said India need to be wary of imported inflation, especially from elevated global energy prices. However, it said the high WPI is partly due to base effects that will even out. Inflation has reappeared as a global issue in both advanced and emerging economies. India’s Consumer Price Index (CPI) inflation stood at 5.6% on year in December 2021 which is within the targeted tolerance band (of 4% +/- 2%).
WPI, after remaining very benign during the previous fiscal on account of Covid- induced weakening of economic activity, record low global crude prices and weak demand, witnessed a sharp uptick, rising to 12.5% during 2021-22 (April-December). This was attributable to the pick-up in economic activity, sharp rise in international prices of crude oil and other imported inputs, and high freight costs.
“The consequent divergence between CPI-C and WPI inflation during the year remained a subject of debate. This divergence can be explained by factors such as variations due to base effect, difference in scope and coverage of the two indices, their price collections, items covered and difference in commodity weights,” the Survey noted. “Further, WPI is more sensitive to cost-push inflation led by imported inputs. With the gradual waning of base effect in WPI, the divergence in CPI-C inflation and WPI inflation is also expected to narrow down.”
CPI moderated to 5.2% in 2021-22 (April-December) from 6.6% in the corresponding period of 2020-21. The decline in retail inflation was led by easing of food inflation. WPI, however, has been running in double-digits with inflation in ‘fuel and power’ group above 20% reflecting higher international petroleum prices.
Monetary policy and liquidity operations since the beginning of the pandemic have geared towards mitigating its adverse impact on economy. In 2021-22, some of the measures undertaken by RBI like CRR cut reached pre-set sunset dates, liquidity has been wound down partly but remains in surplus mode and regulatory measures have been realigned, the Survey noted.
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