ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Surging Wholesale Prices

Persistent pickup in food and manufactured goods prices will increase downside risks to recovery.

 

The sharp rise in the wholesale price index (WPI) to 7.4% in March 2021, the highest monthly increase over the last eight years, was rather unexpected. What is more surprising is the pace and level of the increase. Headline rates almost trebled in the last three months with price pickup surging from 2.5% in January 2021 to 4.2% in February and 7.4% in March. This is also the first time that wholesale price inflation has exceeded consumer price inflation in the last 23 months. And this has happened even as the Reserve Bank of India (RBI) has successfully brought down the consumer price inflation, and the policy rate within the tolerance band in the last four months of 2020–21, despite rising food prices and core inflation touching rather uncomfortably high levels.

The apparent success of the central bank in holding down consumer prices has persuaded the government to retain the consumer price inflation target at 4% for the next five years, with lower and upper tolerance levels of 2% and 6%, respectively. So, then what accounts for the sudden and sharp increase in wholesale prices, which have remained at low single-digit levels for more than a dozen months or even declined for four consecutive months during the period?

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Updated On : 1st May, 2021

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