Suman Chowdhury, Chief Analytical Officer, Acuité ratings & Research comments on the WPI Aug 2021
"Unlike a moderating trajectory for CPI which is driven primarily by food inflation, the WPI inflation has remained firm in Aug-21 and actually increased to 11.39% vs 11.16% recorded in Jul-21. Apart from an unfavourable base, there is a sequential uptick of 1.04%, the highest seen for WPI in the last 4 months. This has been driven by higher fuel inflation including prices of natural gas as well as the continuing pass through of higher commodity prices in manufacturing costs where the sequential print was 0.76%. There is a substantial rise in the case of minerals which has posted a double-digit expansion after a hiatus of 13-months. However, the progress in Kharif sowing along with the recent government interventions in the case of pulses and oilseeds, consolidated food inflation has declined on a sequential basis, offsetting some of the manufacturing pressures.
The divergent trend between CPI and WPI inflation indicates that the current inflationary risks are primarily emerging from the impact of commodity prices on manufacturing sector where further pass through is likely as demand continues to improve. Although the food category may continue to provide relief in the near term, such transmission of production costs may keep core inflation at elevated levels. WPI core inflation has firmed up further by 11.15% YoY and 0.72% MoM amidst increase in input prices. With easing of supply side bottlenecks and overall demand impulse gradually ticking up, we believe that the peak in the headline wholesale inflation is behind us but we would be closely monitoring the momentum in core inflation in order to gauge the pass-through of higher input costs to end consumers.