The prices of food items in India are rising at a much faster pace at the wholesale level than the retail end. The wholesale price index (WPI) for food articles has increased from minus 0.21% to 6.98% between September 2018 and May 2019. The increase in the consumer food price index (CPI) doesn t reflect the same steep increase. The increase in CPI was from 0.51% to just 1.83% in the same period.
Why WPI is not getting reflected in CPI?
- The supply-side is under stress due to a combination of drought and sustained low produce prices.
- As a result, there has been reduced plantings and investment in inputs by farmers which are initially being reflected in crop arrivals at wholesale markets or primary point of sale.
- The resultant wholesale inflation would ultimately get transmitted to the final consumer with CPI but with a lag.
- The trade involving organised players will also find it difficult to pass on costs immediately, especially in an uncertain demand environment. The traders would also reconcile to squeezed margins, albeit temporary.
Further with delay in the onset of monsoon and adverse impact due to cyclone Vayu the situation would further get aggravated. Hence it is said that it won t be too long before consumers, too, begin to feel the pinch from food inflation.