Jul 14, 2023 05:43 PM IST
Torrential rains in two-thirds of the country have triggered widespread flooding in several states, hindering movement of farm and manufactured goods
Wholesale prices fell for the third straight month in June 2023, declining 4.18%, official data showed Friday, diverging from retail inflation, which accelerated to a three-month high of 4.81% in the same month.
The wholesale price index (WPI) is now at its lowest level since October 2015, hitting incomes of farmers and producers of manufactured goods. The government’s policymakers however base their decisions mainly on the consumer price index (CPI), which measures growth in retail prices. In May, the WPI shrunk by 3.48%.
The decoupling – of the WPI and CPI – is not uncommon but mostly, the two move in tandem. The current divergence means while producers aren’t making enough money, consumes are paying steep prices.
Wholesale inflation in food articles climbed 1.32%, against a rise of 1.51% in the previous month, while in manufactured products —the biggest component of the WPI basket — inflation fell 2.71% against a 2.97% drop in May.
Therefore, the divergence is largely driven by an uptick in food costs at the retail level and a large fall in prices of manufactured items, intermediate goods and raw materials at the wholesale level, analysts said.
A key difference between the WPI – which a measure of producer prices – and retail inflation index is the weightage the two indices assign to food and non-food items. Food makes up nearly half of the CPI basket, while it makes up only a fourth of the WPI basket. More the weightage of an item, higher its role in determining the inflation rate.
“There is often such divergence between prices at the wholesale level and retail level because they measure two very different things. One measures input costs, prices of raw materials, among others while the other measures finished goods,” said Pronab Sen, economist and former chief statistician of India.
The continued fall in WPI reflects a sliding price of raw materials globally after peaking in the aftermath of the Ukraine war in 2022, but in food items, the divergence suggests considerable weather-related supply-chain disruptions, which has impacted farmers’ incomes, Sen said.
Wholesale vegetable inflation fell 22% in June, against a decline of 20.1% in the previous month. However, cereals and pulses have increased at the wholesale level, albeit at a slower pace than at the retail level.
Torrential rains in two-thirds of the country have triggered widespread flooding in several states, hindering movement of farm and manufactured goods.
“In food items, while farmers are suffering, retail traders seem to be cashing in on to charge higher margins amid scarcity,” said Prof. Sudhir Panwar of Lucknow University.
To be sure, exactly how some of the ways in which prices transmit from the wholesale level to the retail level remain inexplicable at the moment in absence of more data, analysts say.
- ABOUT THE AUTHOR
Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.