The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
N Adarsh Varma, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur.
The Wholesale Price Index is an index that measures and tracks the changes in price of goods in the stages before the retail level. Wholesale price indexes (WPIs) report monthly to show the average price changes of goods sold in bulk, and they are a group of the indicators that follow growth in the economy. The Wholesale Price Index is an easy and convenient method to calculate inflation. Inflation rate is the difference between Wholesale Price Index calculated at the beginning and the end of a year. The percentage increase in Wholesale Price Index over a year gives the rate of inflation for that year.
The wholesale price index- based inflation rate has been rising for the last four months but now it had contracted to – 0.9 per cent in January on account of lower prices of food articles, especially vegetables and pulses. The wholesale price index inflation rate has been negative for a straight fifteenth month. Wholesale inflation rate was -0.73 per cent in December and -0.95 per cent in January last year. The November wholesale price index inflation has been revised to -2.04 per cent from the provisional estimate of – 1.99 per cent. Food inflation eased to 6.02 per cent in January from 8.17 per cent in December, with vegetables inflation at 12.52 per cent in January against 20.56 per cent a month ago.
As explained by Information and Credit Rating Agency of India Limited (ICRA)’s senior economist Aditi Nayar “The January 2016 Wholesale Price Index inflation is in line with our expectations. We anticipate that Wholesale Price Index inflation will print a tad below zero in February 2016 barring a sizable uptick in crude oil prices in the rest of this month”.
When the Inflation is negative the industry had expressed hope that the prolonged period of benign inflation would induce the Reserve Bank of India to chip in with further easing of the monetary policy to revive growth but the Reserve Bank of India will use the consumer price inflation for consideration which surprisingly surged up to 5.69 per cent in January.
This divergence in consumer price inflation and wholesale price inflation was largely driven by the prices for pulses shooting up in January which have the inflation moderated to 44.91 per cent in January from 55.64 per cent a month ago.