The Wholesale Price Index (WPI) grew by 8.3% in April. This number was 2.3% in February and 3.9% in March. The sequential increase between March and April is 4.4 percentage points, the highest monthly increase ever recorded in the current series, which has data from April 2012. Almost all of the WPI increase is due to fuel prices. If we exclude the primary commodity sub-component of crude oil and natural gas, and the fuel sub-component of mineral oils, the WPI
The Wholesale Price Index (WPI) grew by 8.3% in April. This number was 2.3% in February and 3.9% in March. The sequential increase between March and April is 4.4 percentage points, the highest monthly increase ever recorded in the current series, which has data from April 2012. Almost all of the WPI increase is due to fuel prices. If we exclude the primary commodity sub-component of crude oil and natural gas, and the fuel sub-component of mineral oils, the WPI prints for February, March, and April would be 3.1%, 3.1%, and 4.2%, respectively.
The WPI trend is in sharp contrast to retail inflation, as measured by the Consumer Price Index (CPI). The latter has been flat in February, March, and April, with respective values of 3.2%, 3.4% and 3.5%. The reason for the divergent trajectories of CPI and WPI is simple: The government has prevented a pass-through of higher fuel prices to consumers by keeping retail fuel prices mostly unchanged and absorbing a fiscal hit. Because CPI is the guiding anchor for monetary policy, the artificially low number sends the wrong signal regarding growth-inflation dynamics.
Fuel prices are still deregulated on paper. In reality, this is no longer true. Is the government prepared to hold retail fuel prices as long as crude prices stay high? What prevents it from raising retail prices? Is it the hope that voluntary rationalisation of fuel consumption will ease demand and the fiscal burden?
The Centre has been upfront about assuring farmers that it will protect them from fertiliser price hikes, no matter what the global prices are. It should also declare its intent on fuel prices. Markets — equities, debt, and forex — need to be told this clearly. If a hike is coming, they need to know, and soon.
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