WPI, CPI inflation gap widened: RBI

Pick-up in June inflation remains a concern

The divergence between the wholesale price index (WPI) inflation and consumer price index (CPI) inflation remains wide, said the Reserve Bank of India (RBI) in its the Macroeconomic and Monetary Development report released on Monday. According to RBI, the pick-up in headline WPI and CPI inflation in June 2013 suggests that inflation remains a concern.

“The CPI (rural and urban) inflation remained close to double digits, compared with WPI inflation, which fell below five per cent during the first quarter of 2013-14. This further widened the gap between WPI and CPI inflation,” said the banking regulator.

According to the central bank, from the compilation point of view, CPI and WPI differ on several counts, such as coverage of commodity/service, weighting diagram, the stage at which price quotations are collected, associated market (wholesale market, retail market) and base year.

RBI pointed out that the difference between wholesale and retail price levels can largely be attributed to trade and transport margins and taxes across states. WPI for June rose 4.6 per cent annually, compared to 4.7 per cent the previous month. The rise was on account of food and fuel prices. While CPI picked up 9.87 per cent annually in June, compared to 9.31 per cent in the previous month.RBI points out that food price inflation has been a major driver of headline inflation in recent years.

“High input costs, rising wages and inelastic supply responses to demand led to higher food price inflation. The delayed monsoon with a skewed spatial distribution contributed to high food inflation during most part of 2012-13,” said RBI.

However, in the current financial year, monsoon has been satisfactory. “Going forward, the satisfactory progress of monsoon so far has boosted the prospects for improved foodgrain production for the current year,” said RBI.

However, the central bank is concerned about the rise in inflation in June. “The pick-up in headline WPI and CPI inflation in June 2013 suggest that inflation remains a concern even as the non-food manufactured products inflation has recorded a sharp decline to a low of 2 per cent.”

According to RBI, while slow growth is likely to keep demand conditions largely subdued, risks persist from the recent exchange rate depreciation and the pick-up in global commodity prices, especially of crude oil. These risks underscore the need for continuous vigil and monitoring on the inflation front.