The CPI & WPI Dichotomy

June decided to spice things up by giving us a peculiar twist in inflation. The Consumer Price Index (CPI) took a leap to 4.8 percent from last month's 4.31 percent, while the Wholesale Price Index (WPI) decided to take a nosedive by 4.1 percent. It's like they're playing a game of inflation limbo!

Ah, this age-old dichotomy, forever playing its timeless tune. Ah, the past decade, a rollercoaster ride of divergences. It's like 2015-16 and 2020 got together and said, "Hey, let's shake things up even more!" And boy, did they deliver, especially after that pesky pandemic decided to crash the party.

Ah, you see, the WPI is like a sly detective, capturing the sneaky movements of prices in wholesale markets, giving us a glimpse into the intricate web of the economy's production structure. On the other hand, the CPI is like a nosy neighbour, always keeping tabs on what consumers pay for goods and services. It's like a never-ending game of cat and mouse between these two indices!

Ah, yes, the eternal dance of consumer prices and wholesale prices. Like a tango between two partners, they sway and twirl, but alas, consumer prices always seem to take the lead. Yet, let us not forget the mischievous inflation, lurking in the shadows, measuring the rate of change in prices with a sly grin. It refuses to be confined to the boundaries of market types, for it is a rebel at heart. Oh, the complexities of the economic world! Ah, the perplexing dance of dichotomy. It has a way of leaving one's mind in a delightful state of befuddlement.

Ah, WPI, the wild child of economic indicators, always keeping us on our toes with its unpredictable dance between inflation and deflation. It's like the rebellious cousin of CPI, never one to conform to societal norms of stability. Unlike a rollercoaster ride, CPI inflation has never been one to take a dip into the negative zone.

Ah, the fascinating tale of indices and their inflation rates! It's like a dance between composition and weightage, where the divergence takes centre stage. Truly, a heavyweight battle of numbers! Oh, WPI, always playing hard to get with the services sector. It's like they're saying, "Sorry, services, you're just not our cup of tea." Meanwhile, CPI is over here like, "Hey, goods and services, come on in, we've got room for everyone!" It's like the cool kid at the party, making sure no one feels left out.

Ah, CPI inflation the stickiest of situations! You see, services inflation likes to play hard to get, swayed by the whims of domestic demand and supply conditions. It's like trying to catch a slippery eel in a pond full of unpredictable currents! Ah, the world of inflation, where even services like healthcare, education, and personal care get in on the action. In June, they decided to show off their price-hiking skills with percentages of 6.2, 5.9, and a whopping 9 percent, respectively. It seems like these services are really giving their all to make sure our wallets feel the burn!

WPI, the connoisseur of goods and fuel, dancing to the whims of global price movements like a true trendsetter. It's like imported inflation is a little fashion show, with WPI strutting down the runway, ensuring everyone knows it's in vogue.

Well, well, well, look at WPI inflation trying to keep up with the latest trends! After the pandemic barged in uninvited, WPI inflation decided to collapse like a dramatic diva, hitting a record low of -3.4 percent in May 2020. It seems even global crude and commodity prices couldn't resist joining the party, taking a hit as economic activity came to a screeching halt. Talk about a domino effect! Like a yo-yo on a caffeine high, the percentage shot back up to 16.6 by mid-2022, thanks to the dramatic dance between economic activity and the Russia-Ukraine conflict. Talk about a real-life force multiplier! And as if that wasn't enough, commodity prices decided to join the party and shoot up too. It's like the universe just couldn't resist adding a little extra spice to the mix.

Once more, the decline in crude and commodity prices, along with the restoration of global supply chains, has resulted in the descent of the Wholesale Price Index (WPI) into a state of deflation.

Another factor contributing to the disparity between WPI and CPI inflation rates is the allocation of weights to various commodities. At WPI, the weight assigned to primary food products is 15.3 percent, and for manufactured food products, it is 9.0 percent, resulting in a combined weight of 24.4 percent. In contrast, the weight assigned to food and beverages in CPI is significantly higher at 45.9 percent. Due to the significant influence of food on the price index, the fluctuation of CPI inflation is considerably more pronounced compared to that of WPI.

The decline in the Wholesale Price Index (WPI) inflation signifies a reduction in input costs for the industry. This measure has the potential to mitigate the profit margins of firms and/or alleviate the inflationary impact on consumer prices, specifically within the goods component of the Consumer Price Index (CPI), as the industry experiences a reduction in the upward pressure exerted by increased input costs.

At present, there is a notable and robust resurgence in the services sector, leading to an upward influence on the Consumer Price Index (CPI) inflation.

The prominent factor of concern this year pertains to the interplay between monsoon patterns and food inflation, exerting a more substantial impact on the Consumer Price Index (CPI) relative to the Wholesale Price Index (WPI).

Therefore, the disparity between the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) is expected to persist, with CPI inflation surpassing WPI inflation during the present fiscal year. This stands in stark contrast to the situation observed in the previous year.

In addition to the observed divergence, it is crucial to acknowledge that both indices suffer from the limitation of utilising weights derived from a base year that is outdated, specifically 2011-12. Given the changing structure of the economy and consumption patterns, it is imperative to promptly readjust the weights to a more current baseline year. Obsolete weightings can additionally lead to a disparity between actual and recorded inflation, thereby complicating the formulation of policies.