Domestic inflation remained high for second consecutive year with CPI inflation averaging 5.5% in FY22. WPI hit a record averaging almost 13%, not seen in over a decade. Russia-Ukraine war has completely disrupted food and fuel supply chain causing significant inflationary pressure. How things pan out over next few months and how policy makers handle growth-inflation trade-off would be keenly watched. Here is a look at the movement of the inflation and its various components.<\/p>\n
Inflation is measured by two main indices – CPI (Consumer price Index) and WPI (Wholesale price Index). While CPI primarily measures the price movement of consumption goods & services, WPI measures price movement of all goods produced in the economy. For FY22, average CPI inflation stands at 5.5%, lower than 6.2% in FY21 but still close to upper tolerance level of 6%. (Annual inflation is calculated as average value of monthly index divided by average value during the previous year). Monthly inflation for March\u201922 jumped to 6.95% from 6,07% in Feb\u201922, a result of the war. CPI inflation was relatively moderate in FY19-20 at 3.4% and 4.8%.<\/p>\n
CPI index comprises of groups such as Food, Fuel & Light, Housing, Miscellaneous which includes health, education, transport etc. Food & fuel account for almost 60% of weightage in calculation. An important difference in inflation trajectory for the year was moderation in food prices (which, however, moved up sharply in March\u201922). Average food inflation for FY22 is down to 4.2% from 7.3% in FY21. However, Fuel group has played spoilsport, rising by 11.2% against 2.7% in FY21. Other items, though smaller in weightage, that have contributed to FY22 inflation are clothing, transport etc.<\/p>\n
The bigger upset for the year is WPI which rose sharply to almost 13% from less than 2% for previous two years and almost double the previous peak of last nine years. All the three components of WPI – primary articles (PA), manufactured products (MP) and fuel & power (F&P) recorded significant increase. While inflation in PA went up from 1.7% to 10.2%, MP rose from 2.7% to 11% and F&P, sharply from -8% to 33%. PA comprises of food, non-food (Oilseeds etc) and crude oil. Even though food prices haven\u2019t risen much at 4.1% against 3.1% last year, other items recorded very high inflation with oilseeds groups at 33%, up from 7% and crude oil group at 57%, reversal from -18% in FY21.<\/p>\n
In contrast with CPI which is driven by food & fuel, WPI is primarily driven by MP which has a weightage of 65%. The increase in inflation for this group is more worrying as prices across this group were considerably stable with average inflation over last seven years being just 1.9%. That is more so as most of its components are considered as part of core inflation. Among the biggest contributor is basic metals at 26%, up from 5%, Textiles at 15%, against -0.1% last year and chemicals at 13%. Even though most manufactured products face lower demand and lower capacity utilization, prices have recorded significant increase due to cost push led by commodity prices. For instance, iron ore prices have risen by as much as 55% against 13% last year.<\/p>\n
A look at the monthly inflation rate shows a rather stable trend in both CPI and WPI. Monthly CPI inflation moved within a band of 2.7% against average of 4% over previous two years. WPI moved within a band of 4%, 10.7% to 14.9% against as high as 11% band, -3.4% to 7.9% in Fy21.<\/p>\n
The longer-term trend (FY13-22) shows re-emergence of price pressure which remained subsided till FY20. CPI, which stood at over 9.5% in FY13-FY14, came down to average of 4.2% during FY16-20 and has moved up again to 5.8% over last two years. WPI, which averaged 6% in FY13-FY14, came down sharply to 1.4% during FY15-21 but has surged back to 13% in FY22. Under the current environment of a still existing ultra-loose global monetary policy environment, exacerbated by the war, it may be tough time for Indian, indeed, global policy makers.<\/p>\n","protected":false},"excerpt":{"rendered":"
Domestic inflation remained high for second consecutive year with CPI inflation averaging 5.5% in FY22. WPI hit a record averaging almost 13%, not seen in over a decade. Russia-Ukraine war has completely disrupted food and fuel supply chain causing significant inflationary pressure. How things pan out over next few months and how policy makers handle […]<\/p>\n","protected":false},"author":8,"featured_media":17623,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[857],"tags":[259],"class_list":["post-17622","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","tag-economy","membership-content","access-restricted"],"yoast_head":"\n