The Reserve Bank of India (RBI) on Friday flagged dangers of double-digit wholesale worth inflation exerting upward stress on retail inflation, albeit with a time lag.
In its annual report for FY22, the central financial institution stated: “The substantial wedge between wholesale and retail price inflation amidst a sharp rise in manufactured products’ inflation poses the risk of a possible pass-through of input cost pressures to retail inflation with a lag, although slack in the economy is muting the pass-through.”
Wholesale worth inflation hit 15.08% in April, the best since September 1991, having grown at double-digit charges for the thirteenth month in a row. Meanwhile, inflation based mostly on the buyer worth index (CPI), scaled an 8-year excessive of seven.79% in April and breached the higher band of the RBI’s medium-term goal for a fourth straight month.
Of course, the divergence between the 2 worth gauges is partly as a result of completely different compositions (meals merchandise have a close to 46% weight within the WPI, whereas the WPI is dominated by manufactured merchandise).
The report stated the spike in commodity costs as a result of Ukraine battle has overcast the inflation outlook in India as in the remainder of the world. It warned that the cost-push pressures from excessive industrial uncooked materials costs, transportation prices and world logistics, and provide chain bottlenecks proceed to weigh on core inflation.
The direct pass-through of world commodity costs to the buyer worth index (CPI) is decrease than by way of the wholesale worth index (WPI), with an extended transmission lag within the case of non-food non-fuel (or core) inflation, in response to the report. A 1% change in non-food and non-fuel world commodity costs results in a 0.02% change in core CPI inflation, and round a 0.11% change in core WPI inflation.
On the opposite hand, a 1% change within the core WPI results in round 0.26% change within the core CPI inflation.“To sum up, the hardening of global commodity prices has a relatively moderate impact on CPI inflation relative to WPI inflation, but the impact on CPI core is more persistent,” the RBI stated.
Source: www.financialexpress.com”