WPI inflation remains high

WPI inflation remains high

Subject : Economics

Context : Wholesale price inflation has been recorded at 12.07% for June 2021. This follows another month of high wholesale price inflation of 12.94% in May 2021.

Concept :

• The wholesale price inflation is being attributed to a low base effect along with the rise in prices of petrol, diesel, naphtha and ATF, as well as those of basic metals and food products.

Wholesale Price Index

• It is the most widely used inflation indicator in India.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• All transactions at the first point of bulk sale in the domestic market are included.
• Major criticism for this index is that the general public does not buy products at wholesale price.
• The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.

Concerns:

• The high wholesale prices could push up the production costs and render Indian products uncompetitive in the global markets.
• The increase in raw material and fuel and power prices would result in a squeeze on the working capital of the already struggling small businesses.
• The wholesale price inflation will invariably have a spillover effect on retail inflation and this could cramp any monetary policy intervention to revive the economy in the post-pandemic scenario.
• The high inflation rates could hamper the demand in the economy which in turn will affect the economic revival in the predominantly domestic consumption-based Indian economy.