InvestorQ : What does the spike in WPI inflation hint at ?
Riya Dwivedi made post

What does the spike in WPI inflation hint at ?

shrinidhi Rajan answered.
2 years ago

Unlike the CPI Inflation which refers to retail or consumer inflation, the WPI or wholesale inflation pertains to the producer inflation or the price that the producer or the manufacturer of the commodity actually earns.

At a time when CPI inflation scaled a 6-year high at 7.61%, the WPI inflation number published on 16 November has also touched an 8-month high at 1.48% in Oct-20 compared to just 1.32% in the month of Sep-20. Inflation is announced monthly by next 15th.

In the last few months the WPI inflation has been driven by food inflation but that is not the case this time around. This time, it is the metals and pharma sector that has actually driven the WPI inflation higher on the back of higher price realizations due to buoyant demand.

The positive cue that has to be taken away from the WPI data is that the higher consumer inflation is at least now translating into higher yields for the producers and the manufacturers of the commodity too. That is going to be positive for quarterly profits.

Currently, most economists are of the view that with recent trends in CPI and WPI inflation moving higher, Monetary Policy Committee (MPC) would prefer to maintain status quo in Dec-20 and Feb-21 policies as far as the repo rates are concerned.