Wholesale inflation surges to 6.55% in February

India’s wholesale inflation for February 2017, on a year-on-year basis, shot up to a three-year high of 6.55% mainly due to a surge in the prices of crude oil products. In January, the inflation based on WPI (wholesale price index) was 5.25%.

According to the data released by the Ministry of Commerce and Industry on Tuesday, showed that the fuel basket surged by 21.02% in February from 18.14% in January.

“The wholesale price index numbers are on expected lines,” says Pronab Sen, former Chief Statistician of India. He points out that the steep increase in the ‘fuel and power’ prices category was basically responsible for pushing the wholesale inflation. There was also a base effect because the fuel and power segment had a negative growth this time last year.

“Diesel has shown a sharp spurt of 19.08%,” says NR Bhanumurthy, senior economist at the National Institute of Public Finance and Policy (NIPFP).

The minerals basket also shot up by 31.03% from 25.44%.

The wholesale food prices went up by 2.69% year-on-year when compared with a provisional 0.56% in January. This was mainly due to a sharp rise in prices of cereals, rice and fruits.

“Demonetisation has had a dampening impact on fruits and vegetables,” says Bhanumurthy. He points out that vegetable prices had, in fact, fallen by 8.05% while fruits had become more expensive by 7.14%.

The government also revised December inflation rate to 3.68% from the previous provisional reporting of 3.39%.

More importantly, the government plans to release a new series of indices to measure Wholesale Price Index (WPI) and Index of Industrial Production (IIP). In layman’s terms: Wholesale prices and factory output. The new series, which are expected to be released by the end of April, will have a new base year of 2011-12 and will be in tandem with the base year for the Gross Domestic Product (GDP). The new series is expected to improve data accuracy and also make it comparable to the current GDP calculations.

“I look forward to the changes to be announced. The current indices don’t reflect the structure of the economy,” says Sen.

“It is a long pending change. The base year of 2004-05 is obviously outdated and many of the items in the WPI basket may not be relevant now and out of sync with the economic realities of today. Even the weightage given to some of the items aren’t relevant,” says Bhanumurthy.

In fact, Bhanumurthy is for the discontinuance of WPI: “It is a partial indicator. It doesn’t take into consideration the relevant information on current price build-up in the economy.” He points out that the entire service sector doesn’t come under the ambit of the economy. That’s the reason, he says, the Reserve Bank of India doesn’t consider WPI but Consumer Price Index (CPI).