WPI Inflation at 10.49%

Introduction:

A Wholesale Price Index (WPI) is an index that measures and tracks the changes in the price of goods in the stages before the retail level. This refers to goods that are sold in bulk and traded between entities or businesses. WPI Inflation reached the levels of 10.49% in April 2021, breaching the record of the last 11 years.

What could be the reason to increase the WPI?

• The WPI inflation has increased to 10.49% in April 2021 which was earlier in March 2021 was 7.39%.
• The reason behind this sharp rise in WPI is because global commodity prices have increased on a YoY basis.
• Due to the situation of Lockdowns all over the world in last year on account of the Covid-19 Pandemic, there was a high contraction in the demand for goods and services which further set the low base effect. Hence, this low base had a negative effect here.
• In the coming months, the WPI inflation can go up between the range of 13% – 13.5%.
• The result of WPI has come in market hours but it didn’t impact the market. The reason behind this is that market or RBI is eyeing the Consumer Price Index( CPI) Inflation which is at 4.29% in April 2021.
• CPI is the factor to decide the repo rate. If the repo rate comfort level is between 4%-6%.If this goes up and can sustain then only RBI will hike the interest rates. If it is in between in its comfort level which is  4% to 6% then the interest rate might not change.
• The CPI inflation goes below 4% for a longer horizon then RBI can cut the interest rates as well.
• The reason why the WPI inflation has reached 10.49% is due to an increase in inflation in its petrol and power prices.
• As the inflation of Fuel and Power sector in April month is 20.94% this has happened due to hike in petrol price. The inflation of manufactured products is 9.01%.
• Apart from these 2 contributors, the vegetable price has pulled down the index. The inflation has increased in food products such as Eggs, Meat, Fish compared to last year’s prices.

Conclusion:

The market has seen the discounting, it will be more worried about CPI Inflation by which the rates are decided. If rates are increased then the company’s margins will be on the lower side. If the rate decreases the company’s margin increases because interest/finance cost becomes less.