Wholesale inflation has come down to 2.04% in July. In June, it had increased to 3.36%, which was the highest level of inflation in 16 months. Whereas, wholesale inflation was at 2.61% in May. Wholesale inflation figures for the month of July were released on 14 August.
Earlier, retail inflation figures were released on August 12. Retail inflation has come down to 3.54% in the month of July. This is the lowest level in 59 months. Inflation was 3.21% in August 2019. Inflation had come down due to the decrease in the prices of food items.
Inflation of fuel and power increased, that of primary articles decreased
- The inflation rate of daily use items decreased from 8.80% to 3.08%.
- Inflation in food items decreased from 8.68% to 3.55%.
- Wholesale inflation rate of fuel and power increased from 1.03% to 1.72%.
- The wholesale inflation rate of manufacturing products increased from 1.43% to 1.58%.
Wholesale inflation has three parts:
Primary article which has a weightage of 22.62%. Fuel and power has a weightage of 13.15% and manufactured products have the highest weightage of 64.23%. Primary article also has four parts:
- Food articles like cereals, wheat, vegetables
- Oil seeds come under non food articles
- Minerals
- Crude Petroleum
Impact of WPI on the common man
If wholesale inflation remains high for a long time, it has a bad effect on most productive sectors. If the wholesale price remains high for a very long time, then the producers pass on the burden to the consumers. The government can control WPI only through tax.
For example, in the event of a sharp rise in crude oil, the government had reduced excise duty on fuel. However, the government can reduce tax cuts only within a limit. Factory related goods like metal, chemical, plastic, rubber have a higher weightage in WPI.
How is inflation measured?
There are two types of inflation in India. One is retail and the other is wholesale inflation. The retail inflation rate is based on the prices paid by the common customers. It is also called Consumer Price Index (CPI). On the other hand, Wholesale Price Index (WPI) means the prices that one trader charges from another trader in the wholesale market.
Different items are included to measure inflation. For example, in wholesale inflation, manufactured products have a share of 63.75%, primary articles like food have 22.62% and fuel and power have 13.15%. Whereas, in retail inflation, food and products have a share of 45.86%, housing has 10.07% and other items including fuel also have a share.
RBI had kept the retail inflation forecast for this financial year at 4.5%
During the recent Monetary Policy Committee meeting, the RBI had kept its inflation forecast for this financial year unchanged at 4.5%.
The RBI governor had said – Inflation is coming down, but the progress is slow and uneven. India’s inflation and growth trajectory is moving in a balanced manner, but it is important to remain vigilant to ensure that inflation remains in line with the target.