WPI inflation highest since 1991. DA hike will not be sufficient

According to official data released on Tuesday, wholesale price-based (WPI) inflation increased to 14.23% in November, up from 12.54 per cent in October. Since April of this year, WPI inflation has been in double digits for eight months in a row. In November 2020, the WPI was at 2.29%. In addition, the increase is the biggest since April 2005.

"The high rate of inflation is primarily due to rise in prices of mineral oils, basic metals, crude petroleum, natural gas, chemicals products and food," the Commerce and Industry Ministry said in a statement.

Fuel and power prices increased by 39.81 per cent in November, despite the lowering of taxes. It was 37.18 per cent in October. The manufactured product prices increased by 11.92 per cent, compared to 12.04 per cent in October.

Despite the fact that it is not a policy tool, the rise in the WPI is cause for concern. The WPI tracks prices at the wholesale, or factory gate/mandi levels, as opposed to the CPI-based retail inflation, which is the more extensively tracked policy tool. Even the Dearness Allowance for the Central Government Staff is based on the CPI-IW. Even though the CPI-IW moves in line with the WPI indirectly, the hike in DA will not be sufficient to compensate for the increased household expenditure. Also over the years, the gap between the WPI and the CPI has been widening.

The WPI tracks only the wholesale price, whereas the retail price includes transportation cost, taxes and the retail margin etc. And that WPI pertains to only goods, not services. The CPI is based on the average change in prices of goods and services at the retail level. Essentially, the price paid by the manufacturer and whole seller in WPI and in CPI is that paid by the consumer. The changes in wholesale prices also push the retail prices in more or less the same factor.

As opened by economists, the low-inflation period is over. Inflation in commodities such as health, fuel and light, as well as transportation and communications, has become structural, and supply shortages are assisting rising inflation, which they claim is not transient.