WPI Inflation in India

As per the data released on 15th July, it was observed that the Wholesale price-based inflation (WPI) declined for the second consecutive month to its 23-month low of 2.02 % in June.

What has happened?

  • The WPI index declined to a 23-month low in June, 2019. The value recorded was just 2.02%.
  • For comparison, WPI was at 2.45% in May and was 5.68% in June 2018.
  • The previous lowest recorded value was 1.88% in July,2017.
  • This decline was propelled by the decline in prices of vegetables as well as fuel and power items.
  • The inflation in food articles basket eased marginally to 6.98% in June, from 6.99% in May.
  • Vegetable inflation reduced to 24.76% in June, down from 33.15% in the previous month. While the inflation in potato was -24.27% down from -23.36% in May, onion prices have continued to show the rising trend with inflation at 16.63% during the month, as against 15.89% in May.
  • The Inflation in ‘fuel and power’ category reduced significantly to -2.20% from 0.98%.
  • The manufactured goods also saw a decline in prices with inflation at 0.94% in June, against 1.28% in May.

What is the WPI?

The WPI (Also known as headline inflation) is released by the Ministry of Commerce and Industry. It calculates the implications of price rise at a wholesale level. WPI shows the combined price of a commodity basket comprising 676 items.

It was earlier used by the RBI for most of its policy decisions before 2014 but its inflation calculation is not false proof. As the WPI does not include services nor does it reflect the bottlenecks between producer and wholesaler nor between a wholesaler and final retailer (consumer). Thus from 2014, RBI shifted to CPI for policy decisions.

What are the future trends?

The RBI has projected an upward bias in food inflation in the near term due to the flagging uncertain monsoon, an unseasonal spike in vegetable prices, crude oil prices, financial market volatility, and fiscal scenario posing a significant risk to inflation control efforts of the RBI.

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