Understanding the latest inflation data | Number Theory

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Both retail and wholesale inflation numbers for the month of May are now out. Retail inflation as measured by Consumer Price Index (CPI) fell to 2.8%, a six-year low in the current series. Wholesale inflation as measured by the Wholesale Price Index (WPI) came in at 0.4% in May, the lowest reading in 14 months. Is there a larger message in the latest inflation numbers? Here is what a data analysis shows.

Retail inflation as measured by Consumer Price Index fell to 2.8%, a six-year low. (Reuters)

Understanding the latest inflation data

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  While both CPI and WPI have been lower in the past, they are not always this low simultaneously

  May 2025 headline prints for CPI and WPI are the eighth and 38th lowest in the current series which start from January 2012 and April 2012, respectively. To be sure, a historical analysis of the data shows that WPI and CPI-based inflation numbers do not always align perfectly. This can be seen from the fact that the two series show a correlation of just 0.1 for the entire period from April 2012 to May 2025 for which we have monthly data for both the series. The May set of readings for CPI and WPI are among the lowest simultaneous retail and wholesale inflation prints in the data.
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  The alignment between CPI and WPI is largely a result of their food component alignment

  To be sure, the WPI and CPI inflation prints are not meant to always align. That is because CPI and WPI baskets are designed to capture two different sets of prices. The former tracks the consumption basket of a typical household while the latter has a commodity basket which includes primary commodities and industrial inputs. The WPI, for example, does not have a services component at all. It is the food component in the two inflation indices which actually brings them in sync. This is best seen from the fact that the food component of these two inflation measures – food has a weight of 39% in the CPI basket and 24.4% in the WPI basket – shows a much higher correlation than their non-food components.
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  The present dip in food inflation is largely a result of fall in wholesale prices for primary food articles

  Once again, a comparison of food sub-groups in the CPI and WPI basket is useful here. The overall food inflation in CPI and WPI came in at 0.99% and 1.7% respectively in May 2025. A disaggregated look at CPI and WPI food groups shows that the low food inflation is primarily a result of fall in primary food articles. For example, the primary food article component of WPI (it has a weight of 15%) contracted by 1.6% while the manufactured food component (it has a weight of 9%) actually saw an 8.5% annual inflation. This also means that the current phase of disinflation in food is likely to hurt farmers more than food manufacturers.
• However, non-food inflation is much lower for WPI than CPI

  The non-food component of CPI grew at 4.1% while WPI’s non-food component contracted by 0.2% in May 2025. What is remarkable about the non-food contraction in WPI is that it comes on a very low base of 0.8% growth in May 2024. This suggests that the non-food price environment for producer goods, which is what the WPI captures, is really benign at the moment. Barring an oil price shock from the ongoing geopolitical tensions in West Asia, prices are unlikely to show a spike. While this is likely to give comfort to the inflation outlook going forward, it is also symptomatic of bearish prospects for growth. Can the frontloading of monetary easing by the RBI give a boost to growth in the Indian economy? It is this question that will haunt policy more than inflation numbers going forward.