A revision of the wholesale value index (WPI) and the buyer value index (CPI) might cut back the load of meals and gasoline merchandise – which have turned considerably dearer up to now few months – within the value gauges and, thus, present decrease inflation prints for current months when these are revised on the idea of the brand new sequence, official sources mentioned. However, economists say whereas an easing in inflation can’t be dominated out, topic to the modifications within the weight of the objects and the composition of the product baskets within the new indexes, value stress for current months should still stay “unpalatably high”.
Retail inflation breached the higher band of the central financial institution’s medium-term goal of 2-6% for a fifth straight month and stood at 7.04% in May. Wholesale value inflation, in the meantime, hit an over 30-year excessive of 15.88% in May, having remained within the double digits for 13 months now. Food merchandise dominate the CPI, which the central financial institution targets, and make up 45.86% of this index, whereas gasoline & electrical energy has a 7.94% weight. In the WPI, major meals articles account for 15.26% and gasoline & energy 13.15%.
To make sure, economists don’t count on any revision of the CPI earlier than late 2024 or early 2025, as the brand new consumption expenditure survey – on which the CPI product basket and weight will likely be based mostly – will likely be accomplished solely by June 2023.However, a revised WPI, with 2017-18 base yr, is anticipated to be out quickly. The base yr for the extant CPI sequence is 2012 and for the WPI sequence, it’s 2011-12.
Aditi Nayar, chief economist at Icra, mentioned: “A reduced weight of food and fuels could result in a downward revision in some of the recent inflation prints. Nevertheless, the core-CPI and core-WPI inflation has been sticky at an elevated level as well for the last several months, and therefore the headline prints could still remain unpalatably high.”
India Ratings chief economist DK Pant mentioned, “While food and fuel inflation is contributing to overall CPI inflation, inflation for miscellaneous goods and services from November 2020 to April 2022 was higher than the headline retail inflation. A lot will depend on new commodities that will be added to the consumption basket and their price movement. Modification in the consumption basket and weighting diagram will present the true picture of current inflation.”
As for the WPI, it’s dominated by manufactured merchandise and in all 4 quarters of FY22, the worth stress on this phase was decrease than headline WPI inflation. “Prima facie, this gives an impression that lower food and fuel weight in the WPI may lead to lower headline inflation. Here also if the weight of commodity groups showing high inflation currently – including textiles, paper and paper products and basic metals – is greater in the new index than the extant one, it may lead to higher WPI based inflation,” Pant added.
Yes Bank chief economist Indranil Pan mentioned, “On one side, it may be true that the contribution of food inflation to overall inflation is expected to come down if the weight of food in the new index is lowered. However, on the other hand, the weight for some other items has to go up so that the cumulative weight adds up to 100.”
“In this context, there is a likelihood that the weight of the services sector can go higher. The services sectors such as transportation etc. could boost inflation then. Other services such as gardening, barber services, etc, have recently seen increase in prices and a higher weight there could be a negative for the headline CPI inflation. In the WPI, the weight for food is lower than in the CPI. However, the WPI has a larger weight for industrial inputs such as metals, etc, and with global commodity prices remaining on the higher side, it could add to pressures for the Headline WPI inflation,” Pan mentioned.
Source: www.financialexpress.com”