Page 46 - Tehelka Issue 15 August 2018

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Wholesale Price Index

or Wholesale Worries?

News & Driven by surging oil and food prices, the country’s wholesale price
inflation has hit 54-month high in June, a development that would
views strengthen calls for more monetary policy tightening by the RBI

Bharat hiteshi
he reason for rise in present and for future. While it happens,
Hiteshi is an wholesale price inflation the industry suffers because it cannot
independent journalist- may be varied-hefty rise in expect a rate cut from the RBI. When the
turned-author and a petrol prices, costly food manufacturing sector and services sec-
political commentator. and other manufactured tors are hit, the growth rate is automati-
The views expressed T goods and services, but cally hit.
are his own wholesale price inflation soaring to a The rising crude oil prices that Te-
four-and-a-half year high is a big cause helka had highlighted in its cover story
of concern for the nation. The Wholesale Fuel on Fire in June have started pushing
Price Index (WPI) as a measure of price inflation to a new high. The Index of
gains according to the latest data shows Industrial Production for June reveals
a sharp surge in wholesale inflation how macroeconomic activity has been
in June to a 54-month high of 5.77 per affected by contributing significantly to
cent. It may not be a cause of concern a 214 basis points in June 2018. Thanks to
for the Reserve Bank of India because all these contributing factors, the infla-
the RBI gives consideration to retail tion has risen from 4.55 points in Febru-
inflation for hiking the interest rates. ary 2018 to 16.18 per cent by June. Then
However, wholesale price inflation is food, fruits and vegetables are another
sure to exert added pressure on the RBI cause of worry. The inflation in vegetable
to make changes in policy rates. After all prices more than tripled in pace from
monetary policy formulation not only 2.51 per cent in May to 8.12 per cent in
depends on Consumer Price Index (CPI) June. The manufacturing sector is also a
but equally on wholesale price index. Lit- cause of worry for the upward trend in
tle doubt the significance of Wholesale inflation. The inflation in the manufac-
Price Index cannot be diminished. turing sector including basic metals that
To add to the woes of the nation is the includes a range of goods from alloy steel
retail inflation, which has shown upward castings, stainless steel tubes to copper
trends. Only in May 2018, the CPI had plates and aluminium sheets showed
gone upwards of four per cent and now inflation of 17.34 per cent.
it has crossed five per cent. At four per
cent, the consumer price index is just IMF forecast
one per cent lower than the danger mark In its latest report, the International
of six per cent. It is in this light that one Monetary Fund (IMF) has brought
notes that the RBI had to hike the repo down its growth forecast for India by 10
rate by 25 basis points during May 2018 basis points to 7.3 per cent for 2018-19.
after the consumer price index went past Significantly, it has downgraded the
four per cent. growth rate by 30 basis points to 7.5 per
cent for 2019-20. The main reason for
Double whammy the downward revision is raising fuel
In such a scenario, the RBI is left with prices. What could add to inflation is that
no option but to raise interest rates to the government has already announced
contain inflation. The RBI measure aims higher minimum support prices (MSPs)
to protect the poor from price rise for the for Kharif crops, which will have an

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