It was only a matter of time before wholesale prices were reflected at the retail level. National CPI inflation over the past two months confirms just that. That area had shown retail prices were at significant upside risk when the Wholesale Price Index (WPI) rose to 20 percent in October 2021 (read: CPI Faces WPI Threat, Posted October 12, 2021).
The WPI rose 26.2 percent year-on-year in December 2021, only slightly below the all-time high of 27 percent recorded in November. The following two-digit CPI numbers do not necessarily have to be unique, as WPI only provided the CPI in the past. Recall that the previous bull run on wholesale items towards the end of 2018 resulted in multi-year high inflation north of 14 percent with a few months delay.
In contrast to the WPI peak 2018, the current one has more contributions than just the electricity and gas subgroup. Cargo, textiles and agricultural products have shown consistently high growth and the base effect will take a few more months to calm the upward trend. The rise in international oil prices is the most obvious and direct contribution to the WPI, flowing into the transport of goods, which is usually reflected in prices with a delay.
Contrary to popular belief, even if global crude oil prices fell from here, oil-related prices may not offer any breathing space for the foreseeable future. Remember, the government has an agreement with the IMF that paves the way for higher PL each month. All-time highs have been tested in oil prices, and there is little chance the government will cut prices anytime soon, even if there was still room.
There is even more to the gas and electricity tariffs. The electricity base tariffs will all be revised upwards again sooner or later. The gas prices that have been frozen for over two years could make a much stronger dent. The petitions from the two Sui companies suggest that the surge may be a reminder of 2019, which saw the WPI bull rally alone for a good six months.
Fiber crop prices have almost doubled year over year, while prospects for the sugar and cotton harvests also point to further price increases. The recent fertilizer shortages and sky-high input prices will soon be reflected in crop prices once the products hit the market. There doesn’t seem to be any breathing space on the WPI for the next quarter, and retail prices should follow suit.