wholesale-price-inflation-cools-to-1-in-march

Context: The official Wholesale Price Index for 'All Commodities' (Base: 2011-12=100) for the month of March,2020 declined by 0.90% to 121.1 (provisional) from 122.2 (provisional) for the previous month.

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  • Inflation 
    • Sharp fall in food prices in the country: As per data released by the Ministry of Commerce, food inflation in March fell to 4.91% from 7.79% in the previous month.
    • The inflation based on wholesale price index (WPI) eased to 1% in March from 2.26% in February.
    • Rise in onion prices continued.
    • However , the nationwide lockdown would also have some impact on data collection.
  • Primary articles
    • The inflation for primary articles declined by 2.5% to 139.5 (provisional) from 143.1 (provisional) for the previous month. 
  • Non Food Articles
    • Decline in inflation for non food articles: Due to lower prices of floriculture, sunflower, raw rubber linseed, coir fibre, rape & mustard seed and hides and niger seed, copra (coconut), raw jute and castor seed ,the inflation index for 'Non-Food Articles' group declined by 4.2% to 126.1.
    • The index for 'Minerals' group rose by 4.2% to 153.8 (provisional) from 147.6 (provisional) for the previous month 
  • Fuel and Power
    • Fall in crude oil prices: The index for 'Crude Petroleum & Natural Gas' group declined by 6.6% to 81.3 (provisional) from 87.0 (provisional) for the previous month due to lower price of crude petroleum (9%).
    • The index for the 'Mineral Oils' group declined by 5.6% to 87.2 (provisional) from 92.4 (provisional) for the previous month .
    • However, the price for petroleum coke moved up by 8 %.
  • Manufactured products
    • The index for manufactured products remained unchanged at its previous month level of 118.7.
    • Decline in prices of textiles due to lower price of manufacture of knitted and crocheted fabrics.
    • The inflation in 'Manufacture of Chemicals and Chemical Products' also declined.
  • WPI food index
    • The rate of inflation based on WPI Food Index consisting of ‘Food Articles’ from Primary Articles group and ‘Food Product’ from Manufactured Products group decreased.

Inflation

About

  • Inflation is defined as a situation where there is sustained, unchecked increase in the general price level and a fall in the purchasing power of money. Thus, inflation is a condition of price rise. 
  • WPI is released by the Economic Advisor in the Ministry of Commerce and Industry.
  • An upward surge in the WPI print indicates inflationary pressure in the economy and vice versa. The quantum of rise in the WPI month-after-month is used to measure the level of wholesale inflation in the economy.
  • Inflation is classified into three types: Demand-Pull inflation, Cost-Push inflation, and Built-In inflation.

Types of Inflation:

  • Demand-pull inflation is the upward pressure on prices that follows a shortage in supply. 
  • Cost-push inflation: It is a result of the increase in the prices of production process inputs. 
  • Built-in inflation: It is the third cause that links to adaptive expectations. As the price of goods and services rises, labor expects and demands more costs/wages to maintain their cost of living.

Wholesale Price Index

About

  1. A wholesale price index (WPI) is an index that measures and tracks the changes in the price of goods in the stages before the retail level that is, goods that are sold in bulk and traded between entities or businesses instead of consumers.
  2. It is published by the Office of Economic Adviser, Ministry of Commerce and Industry.
  3. The weightage  of components in WPI
    1. Manufactured products = 64.2%
    2. Primary articles = 22.6%
    3. Fuel and power = 13.1% 

New series of WPI

  • With an aim to align the index with the base year of other important economic indicators such as GDP and IIP, the base year was updated to 2011-12 from 2004-05 for the new series of Wholesale Price Index (WPI), effective from April 2017.

Major components of WPI

  • Primary articles is a major component of WPI, further subdivided into Food Articles and Non-Food Articles.
  • Food Articles include items such as Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.
  • Non-Food Articles include Oil Seeds, Minerals and Crude Petroleum
  • The next major basket in WPI is Fuel & Power, which tracks price movements in Petrol, Diesel and LPG
  • The biggest basket is Manufactured Goods. It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.

WPI food index

  • WPI has a sub-index called WPI Food Index, which is a combination of the Food Articles from the Primary Articles basket, and the food products from the Manufactured Products basket.


Source: https://pib.gov.in/newsite/PrintRelease.aspx?relid=202265