Home   »   UPSC Calendar 2023   »   Inflation Crosses 14% In India

Inflation Crosses 14% In India

What has happened?

  • WITH PRICES of crude oil and other commodities rising due to disruptions in global supply chains in the wake of the Russia-Ukraine war,
  • The Wholesale Price Index or WPI-based inflation surged to 14.55% in March 2022, after a 11% reading in February 2022. This is the second highest WPI print in the 2011-12 series.

  • The annual WPI inflation — inflation at the producer level — has remained in the double—digits in every month of 2021-22 and has almost consistently edged upwards.

Why its worrying?

  • For policymakers, a more worrying prospect is that of the Consumer Price Index or CPI-based annual inflation – inflation at the retail
  • level – converging towards the WPI-based inflation,
  • In deviation from the usual trend of the wholesale price inflation collapsing in the direction of the retail price rise.
  • The rise in CPI inflation, with no cooling off in sight, indicates a shift from the historical trend where the wholesale inflation typically collapses towards consumer inflation.

  • Ahead of the wholesale price-based inflation spiking to a four-month high of 14.55% in March, a high base of 7.89% in March 2021 notwithstanding, Data released last week showed retail inflation in March had surged to a 17-month high of 6.95%,
  • Driven primarily by high prices of fuels and food items such as cereals, vegetables, milk, oils, meat, and fish.

Will further boost the financial crisis

  • Economists are worried. “You are in a situation where the pricing power has increased in the hands of the producers.
  • So, what will happen is that cost push increases showing up in the WPI will influence the financial crisis.
  • In the past, because we had this very large MSME sector, it was the other way around,” Pronab Sen, former Chief Statistician of India.
  • “Given that the MSMEs have been decimated, the pricing power today has shifted.
  • The kind of patterns one talks about the WPI convergence to the CPI may not work; it may in fact be the CPI convergence to the WPI,” Sen said.
  • Covid impact on MSME
  • The gross non-performing assets (NPAs) of MSMEs, or loans defaulted by these enterprises, rose by Rs 20,000 crore to Rs 1,65,732 crore as of September 2021 from Rs 1,45,673 crore in September 2020.
  • The Covid-19 impact on MSMEs has played out in two ways:
  • One, in the FMCG space, the wiping out of many small firms handed increased pricing power to larger manufacturers, and this resulted in price increases despite falling product volumes.
  • Two, in industrial sectors such as automobiles that were already facing increased commodity prices, Reduction in the number of MSME suppliers handed the ability of commanding higher prices to the remaining component makers, translating into rising input costs for original equipment manufacturers.
  • India’s largest carmaker Maruti Suzuki India Ltd raised the prices of its products four times in 2021-22 – compared to just one or two price hikes every year.

GST collection

  • Sen also alluded to the fact that the growing GST collections were an indicator of growth in the segment of the economy that collects the tax.
  • “It’s part of the same story. Basically, what the GST collections are telling you is that the component of the economy that we’re paying GST to has grown,” he said.

Signal for CPI

  • Between the wholesale price and the retail price, the difference essentially is that the former tracks only basic prices devoid of transportation cost, taxes and the retail margin, etc.
  • And that WPI pertains to only goods, not services.
  • Despite this, the WPI-inflation far exceeding the CPI-inflation serves as a signal for retail prices to rise further going forward.

What next?

  • Going ahead, retail inflation may not cool down, prompting the RBI to introduce more liquidity curbing measures.
  • “The month-on-month decline in the food and beverages index in March 2022, was predominantly led by vegetables, eggs and tea, whereas many other items saw moderate increases.
  • We remain concerned that even a normal monsoon may not be enough to douse the retail prices of those items that are pushing up food inflation, such as edible oils,” Aditi Nayar, Chief
  • Economist at ratings agency ICRA said.
  • ICRA expects WPI inflation to remain in the range of 13.5-15% in April, partly depending on where crude oil prices settle in the remainder of the month and how much petrol and diesel prices are revised further.
  • “The broad-based nature of the rise in the WPI inflation is likely to be of particular concern to the MPC. We see a growing probability of the first repo hike being preponed to June 2022,” Nayar said.

Q) Who among the following will not be negatively affected by the higher inflation?

  1. Consumers
  2. Creditors
  3. Pensioners
  4. Businesses



Latest Burning Issues | Free PDF

Sharing is caring!

Download your free content now!


We have received your details!

We'll share General Studies Study Material on your E-mail Id.

Download your free content now!

We have already received your details!

We'll share General Studies Study Material on your E-mail Id.

Incorrect details? Fill the form again here

General Studies PDF

Thank You, Your details have been submitted we will get back to you.

Leave a comment

Your email address will not be published.