Wholesale inflation (WPI) rose to 9.68% in May, up from 8.26% in April. This marks the highest level of inflation in 43 months; it had previously reached 10.70% in September 2022. The Ministry of Commerce released the wholesale inflation data today, June 15.
The rise in inflation is driven by increasing prices of essential commodities and fuel. Additionally, the costs of grains and edible oils have gone up. Tensions between the US and Iran have persisted for three and a half months; if the situation does not normalize, inflation could rise further.
Rise in prices of essential goods, fuel, and power
-Inflation for essential commodities (primary articles) rose from 3.78% to 4.99%.
-Inflation for food items (food index) increased from 3.11% to 4.49%.
-The wholesale inflation rate for fuel and power rose from 24.89% to 30.33%.
-The wholesale inflation rate for manufactured products increased from 6.68% to 7.48%.
Impact of the Wholesale Price Index (WPI) on the common man
Prolonged high wholesale inflation adversely affects most productive sectors. If wholesale prices remain elevated for an extended period, producers tend to pass the burden on to consumers. The government can control WPI primarily through taxation.
For instance, when crude oil prices surged sharply, the government cut excise duty on fuel. However, there is a limit to how much the government can reduce taxes. Factory-related goods—such as metals, chemicals, plastics, and rubber—carry significant weightage in the WPI.
How is inflation measured?
In India, there are two types of inflation: retail inflation and wholesale inflation. The retail inflation rate is based on the prices paid by ordinary consumers; this is also known as the Consumer Price Index (CPI). In contrast, the Wholesale Price Index (WPI) reflects the prices charged by one business entity to another in the wholesale market.
Different items are included to measure inflation. For instance, in wholesale inflation, manufactured products account for 63.75% of the index, primary articles (such as food) for 22.62%, and fuel and power for 13.15%. Meanwhile, in retail inflation, food and products account for 45.86%, housing for 10.07%, and other items—including fuel—also make up a portion of the index.