Thread by @finshots

India’s WPI #inflation stands at a whopping 14.2% - a 30-year high.

What’s fueling the price rise? (1/n)🧵

First things first - we’re talking inflation of ‘wholesale’ prices here. This isn’t ‘retail’ inflation that captures the prices facing the consumer. It essentially tracks factory gate prices - the price at which goods leave the factory for bulk sales.

And so it differs from the Consumer Price Index. For instance, the CPI would give more weightage to food because food prices make a hell of a lot of difference to the average consumer. But when it comes to wholesale, not so much.

Now here’s the interesting bit - it’s not just that WPI is peaking to record high levels, but the gap between WPI (14.2%) and CPI (4.9%) is widening too.
Now, what does that mean?

Well, producers are facing high #prices - which doesn’t exactly come as a surprise. You look at fuel prices, shipping costs, distribution costs - the charts are exploding.

But you see, consumer prices aren’t rising at the same pace.

And it seems as if we’re not facing the pinch. Why?
Well for starters, we are feeling the pinch. FMCG companies, paint companies, cooking oil etc. have all been hiking their prices.

However, they haven’t been able to pass on all of their costs to consumers because they’re still tentative about demand. If people are still holding on to their purse strings, they have little incentive to hike prices.

If they hike prices nonetheless, it may affect their business some more.

But make no mistake, inflation is happening. Prices are increasing on the services side, it just doesn't reflect on the CPI because food, beverage & fuel dominate that index.

So we have to be careful about the conclusions we draw from these numbers. With that being said, however, economists are now arguing that this inflation regime might be here to stay. What do you think? Let us know.

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