A revision of the wholesale price index (WPI) and the consumer price index (CPI) could reduce the weight in the price gauges of food and fuel, which have become significantly more expensive in recent months, and thus show lower inflation prints for the last few months when based on the new Series to be revised, official sources said. However, economists say a fall in inflation cannot be ruled out, but subject to changes in item weights and basket composition in the new indices, price pressures could remain “uncomfortably high” for the past few months. .
Retail inflation broke the upper end of the central bank’s medium-term target of 2-6% for the fifth straight month, coming in at 7.04% in May. Wholesale price inflation hit 15.88% in May, a more than 30-year high after 13 months of staying in double digits. Grocery products dominate the CPI that the central bank is targeting, accounting for 45.86% of that index, while fuel and electricity weigh 7.94%. In the WPI, primary foods account for 15.26% and fuel & electricity for 13.15%.
Economists don’t expect a CPI revision until late 2024 or early 2025, as the new consumer spending survey — on which the CPI basket and weight are based — won’t be complete until June 2023. A revised WPI with the base year 2017-18 is expected to be released soon. The base year for the existing CPI series is 2012 and for the WPI series 2011-12.
Aditi Nayar, chief economist at Icra, said: “Less weight on food and fuel could lead to a downward revision of some of the latest inflation figures. Nonetheless, core CPI and core WPI inflation have also remained at elevated levels over the past few months and as such headlines could still remain uncomfortably high.”
India Ratings chief economist DK Pant said: “While food and fuel inflation contributes to headline CPI inflation, inflation for miscellaneous goods and services was higher than headline retail inflation from November 2020 to April 2022. Much will depend on new commodities being added to the consumption basket and their price development. Changing the consumption basket and weight chart will show the true picture of current inflation.”
The WPI is dominated by industrial products and in all four quarters of FY22 price pressures in this segment were lower than headline WPI inflation. “At first glance, this gives the impression that lower food and fuel weights in the WPI could lead to lower headline inflation. Again, if the weight of commodity groups currently experiencing high inflation – including textiles, paper and paper products, and base metals – is greater in the new index than in the existing one, this may result in higher WPI-based inflation,” Pant added.
Yes Bank chief economist Indranil Pan said: “On the one hand, it may be true that the contribution of food inflation to headline inflation is projected to decline as the weight of food items in the new index is lowered. On the other hand, for some other items, the weight must increase for the cumulative weight to equal 100.”
“In this context, there is a likelihood that the weight of the service sector may increase. The service sectors such as transport etc. could then boost inflation. Other services such as gardening, hairdressing, etc. have recently seen their prices rise and a higher weight could have a negative impact on headline CPI inflation. In the WPI, the weight for food is lower than in the CPI. However, the WPI has a heavier weight for industrials like metals etc. and as global commodity prices remain on the higher side, this could add pressure to the headline WPI inflation,” Pan said.