Gap between WPI, CPI inflation worries CSO

The Central Statistics Office (CSO) says it is worried at the widening gap between inflation reported by the wholesale price index (WPI) and the consumer price index (CPI).

The gap enlarged from 2.86 percentage points in 2014 to 7.46 in 2015 till August. "The increasing divergence between these during 2015 has become a matter of grave concern," CSO Director-General Ashish Kumar and Dilip Kumar Sinha said in a paper.

Some of the divergence is explained by the difference in the way the two indices are computed. Also, a small percentage change in the wholesale market leads to higher retail price movements because trade and transport margins change at a higher rate with a rise in the wholesale prices of important items.

Besides, inflation depends on price movement of raw materials and changes in excise duty. Cotton yarn registered deflation of eight per cent in 2015, whereas cotton shirts witnessed 0.04 per cent inflation in the WPI and 6.62 per cent in the CPI, justified as trade and transport margins and other overheads are borne by retailers.

"Prices in wholesale markets are not dependent on cost of production. Middlemen and retailers are dictating terms," the study says.

If the 142 items common to the two indices are taken into account, the divergence contracts to about five percentage points against 10 if only the non-common items are considered.

The divergence has also been attributed to different weights for items. Diesel registered a 10 per cent deflation in 2015, but had only 0.14 per cent weight in the CPI against 4.8 per cent weight in the WPI.