Snapping two months of divergence, CPI, WPI move in tandem

Economists, however, are not sure about how the numbers will behave once Kharif crops arrive

After two months of showing a divergent trend, both wholesale price index (WPI)-based inflation and its consumer price index counterpart started moving in tandem in September. Going forward, economists are not uniform in their view as to how both the numbers will behave as Kharif crops come in the market.

The simultaneous rise in the retail and wholesale price inflation numbers can be explained from lag effects of rising food prices on consumer prices front. 

"The consumer-price inflation is correcting the huge gap that we had witnessed in food items at retail and wholesale level in the previous months", Soumya Kanti Ghosh, chief economist at State Bank of India, said.

In previous two months, consumer price inflation came down, while WPI rose, giving rise to various theories. WPI inflation rose from 5.16% in June to 5.85% in July and then further to 6.10% in August. On the other hand, CPI inflation declined from 9.87% to 9.64% and then further to 9.52% in these months. In May and June, both the numbers had moved in one direction only.

However, WPI inflation increased to 6.46% in September and CPI to 9.84%.

Ghosh said CPI inflation may enter double digits as the gap between CPI food and WPI food inflation number gets corrected further.

The gap between food inflation in WPI and CPI is still high at 700 basis points in September. While food inflation in retail counters was 11.44%, WPI rate of price rise was 18.40%.

Non-food CPI inflation may also rise further as high wholesale prices of textiles and leather get rubbed into CPI numbers, say for instance in clothing and footwear, Ghosh said.

However, Yes Bank chief economist Shubhada Rao expected divergent trend in the two numbers. While WPI is expected to rise to 7-7.5% by FY14-end, CPI is likely to come down to 8-8.5%.  

 

WPI Inflation
	Food Inflation	Vegetable Inflation	Onion Inflation	Fuel Inflation	Manufactured Product Inflation	Overall  Inflation
April	6.08%	(-)8,88%	90.83%	8.33%	3.69%	4.77%
May	8.25%	5.21%	94.28%	7.27%	3.25%	4.58%
June	10.27%	17.36%	114.76%	7.51%	2,89%	5.16%
July	12,29%	46.85%	146.43%	11,36%	2.60%	5,85%
Aug	18.18%	77.81%	244.62%	11.34%	1.90%	6.10%
Sept	18.40%	89.37%	322.94%	10.08%	2.03%	6.46%

CPI Inflation
	Food & Beverages Inflation	Vegetable Inflation	Fuel Inflation	Clothing,  Bedding & Footwear	Overall Inflation
April	10.61%	5.43%	8.10%	10.22%	9.39%
May	10.65%	9.78%	8.55%	9.72%	9.31%
June	11.84%	14,55%	8.72%	9.71%	9.87%
July	11.24%	16.40%	8.39%	9.39%	9.64%
Aug	11.06%	26.48%	7.58%	8.99%	9.52%
Sept	11.44%	34.93%	7.67%	9.28%	9.84%

Note: Base year of WPI inflation is 2004-05 and that of CPI inflation is 2010

Source: Commerce & Industry Ministry, Ministry of Statistics and Programme Implemenation