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    Two inflation rates, two contrasting stories


    News Analysis

    Shishir Sinha | New Delhi, June 15 | Updated on: Jun 15, 2022

    The CPI is heavily weighted towards food, while the WPI is heavily weighted towards manufactured products

    The government this week reported two different rates of inflation – one was down while the other was up. Producers’ inflation based on the Wholesale Price Index (WPI) surged to over a four-decade high of 15.88 per cent in May, while retail inflation based on the Consumer Price Index (CPI) dropped to 7.04 per cent in May from a 95-month high of 7.79 per cent in April.

    Both are for the same period but have different trajectories, and one important reason for that is weightages.

    The CPI is heavily weighted towards food, while the WPI is heavily weighted towards manufactured products. In the CPI, the food and beverages group accounts for more than half (54.18 per cent) of the total weightage. The Fuel and Light category accounts for just 7.94 per cent of the total weightage.

    In the WPI, the Manufactured Products group accounts for nearly two-thirds (64.2 per cent) of the total weightage. Additionally, the fuel and power category accounts for 13.2 per cent of the weightage. The Food Index accounts for 24.4 per cent of the weightage. 

    Food inflation

    Food inflation as measured by the CPI has eased over the last month, falling to 7.84 per cent in May from 8.1 per cent in April. Inflation in the fuel and light category in the CPI eased to 9.54 per cent in May from 10.8 per cent in April.

    Manufactured product inflation as measured by the WPI eased only marginally to 10.11 per cent in May from 10.85 per cent in April. The fuel and power category in the WPI, however, saw inflation accelerate to 40.62 per cent from 38.66 per cent over the same period.

    The easing of food inflation, combined with the high weightage of food in the CPI, is one of the prime reasons for overall CPI inflation easing in May. In addition, the excise duty cuts on fuel by the Centre have further eased the fuel price inflation at the retail level.

    However, high oil prices in the international market have resulted in high and persistent inflation in manufactured products, fuel, and power categories of the WPI. The relatively high weightages of these two categories have resulted in the WPI inflation increasing for May.

    Other Factors Specific to May 2022

    A lockdown was imposed as the second wave commenced in April 2021 and peaked a month later. Mobility fell sharply between the two months and the cost of movement of goods rose. Manufacturing firms reacted by curtailing output. Consequently, the WPI grew minimally (0.68 per cent).

    Consumers, however, could not curtail consumption and so the CPI grew to a greater extent (1.65 per cent). Accordingly, the increase in CPI from April to May 2021 was proportionately larger than in the WPI. This translated into a higher base effect on May 2022 CPI inflation, imparting it a dampening impact.

    Between April and May 2022, WPI grew at a faster rate (1.38 per cent) than it did last year, mostly on account of imported inflation. Combined with the lower growth of the previous year’s base, the impact on WPI inflation was thus amplified. At the same time, the CPI grew at a lower rate (0.94 per cent) from April to May, 2022 than it did last year, as in the absence of lockdown, transportation costs were normal and more so with excise cuts on diesel and petrol.

    Published on June 15, 2022

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