Wholesale Price Index (WPI) inflation is not an important input for the MPC when it deliberates on policy. Yet, it is a very good indicator on what is happening on the producer side as it is broadly speaking a producers price index.
This index is dominated by manufactured products which have a weight of 64 percent in the index and are influenced by global factors. Hence the tendency of global prices increasing gets reflected more in the WPI than CPI. This number has been above 10 percent throughout the year and only part of the explanation is in the low base effect.
Contrary to our expectations of 11.6 percent WPI in January, WPI has come in at 13 percent, which is only slightly lower than last month. WPI inflation eased from 13.6 percent, in December 2021 to 13 percent, in Jan 2022, implying input price pressures continue to remain elevated. Only manufactured products inflation declined from 10.6 percent in December 2021 to 9.4 percent in January 2022. Fuel and power inflation remained unchanged at 32.3 percent,. On the other hand, food inflation picked from 9.2 percent, to 9.6 percent.
1. Food inflation in January 22 is now at a 24-month high of 9.6 percent,. This is led by sharp jump in prices of vegetables (38.5 percent, in January 2022 versus 31.6 percent in December 2021) and eggs, meat and fish (9.8 percent versus 6.7 percent,). Within vegetables, prices of onion, tapioca, peas, cauliflower, brinjal, cabbage, carrot, bitter gourd and pumpkin picked up the most. Price of potato fell less sharply. On the other hand, price of tomato moderated significantly. Prices of fruits also eased, to 12.5 percent, in January 2022 from 15.1 percent, in the previous month.
2. Fuel and power inflation in January 2022 remained unchanged from last month at 32.3 percent,. Coal prices were stable at 3.1 percent, for the third consecutive month in January. Moderation in mineral oil index (52.2 percent, in January 2022 from 62.6 percent, in December 2021) was countered by increase in electricity prices (15.7 percent versus -0.2 percent,). Ease in mineral oil index was despite pick up in international oil prices (54.7 percent, in January 2022 versus 49 percent, in December 2021).
3. Core inflation in January 2022 slowed for the third consecutive month to 9.7 percent, from 11 percent in December 2021. Manufactured products inflation was also down to 9.4 percent in January 22 from 10.6 percent in December 2021. Of the 22 commodity indices, 11 indices rose at a slower pace in January 2022 than December 2021 led by basic metals, textiles, paper products, fabricated metal products and rubber and plastic products. On the other hand, prices of computer and electronic products, electrical equipment, machinery and equipment and motor vehicles accelerated in January 2022. Pace of increase in international commodity prices had softened to 0.8 percent, (MoM) in January 22 comapred to 2.1 percent increase seen in December 21, but has again picked up in February 2022 (3 percent)
Movement of WPI | Source: CEIC, Bank of Baroda Research
