Image Courtesy:neoiascap.com
Even as prices of food items surged during the lockdown, wholesale prices in the country witnessed a deflation of 3.21 percent in May due to the sharp decline in the prices of fuel and power, a 4.5 year low, Deccan Chronicle reported.
A Wholesale Price Index (WPI) measures the changes in the prices of goods at the wholesale level where goods are sold in bulk and traded between businesses, instead of consumers. It shows the combined price of a commodity basket which comprises of 676 items, but it doesn’t include services like the housing, educational and medical care sector and doesn’t reflect the problems between the producer n wholesaler or wholesaler and customer. The prices used for compilation of WPI are collected at ex-factory level for manufactured products, at ex-mine level for mineral products and ex-mandi level for agricultural products.
The Food Index consisting of ‘Food Articles’ from Primary Articles group and ‘Food Product’ from Manufactured Products group have provisionally increased from 145.7 in March, 2020 to 146.1 in May, 2020. The annual rate of inflation based on WPI Food Index decreased from 5.20% in March, 2020 to 2.31% in May, 2020, the statement by GoI stated.
It read, “Out of the 22 National Informatics Centre (NIC) two-digit groups for Manufactured products, 10 groups that have witnessed increase in prices are manufacture of beverages; tobacco products; wearing apparel; leather and related products; wood and of products of wood and cork; paper and paper products; pharmaceuticals, medicinal chemical and botanical products; other non-metallic mineral products; motor vehicles, trailers and semi-trailers and other transport equipment.”
“Whereas the groups that witnessed decrease in prices were manufacture of food products; textiles; printing and reproduction of recorded media; chemicals and chemical products; rubber and plastics products; manufacture of basic metals; fabricated metal products, except machinery and equipment; computer, electronic and optical products; electrical equipment; machinery and equipment as compared to March, 2020,” it added.
According to the statement, as a result of slackened demand, overall the WPI inflation for May 2020 for Primary Articles including food articles, non-food articles, minerals and crude petroleum in total reduced to -3.21% from 0.42% in March 2020. The WPI inflation for fuel and power products in May 2020 also fell to -19.83% as compared to -2.93% in March 2020. The WPI inflation for manufactured products also fell to -0.42% from 0.25% in March 2020. However, prices of food articles increased, at 1.13 percent in May 2020, down from 2.55 percent in April 2020.
While potato prices surged by 52.25 per cent m-o-m in May, the prices of onion rose by 6.26 per cent, and pulses rose by 12 per cent. Last week, the wholesale prices of onions at the Lasalgaon APMC market rose 13% from Rs. 850 per quintal to Rs. 960 per quintal. In April 2020, potatoes were sold at Rs. 1791 per quintal.
A falling WPI is worrisome for the government as it indicates a poor performance on the part of manufactured products. It indicates that manufacturers are losing pricing power and seeing less incentive to manufacture goods. Suman Chowdhury, Chief Analytical Officer at Acuite Ratings and Research told Outlook India, “While data collation for inflation has been a challenge and no data for WPI or CPI was available for April, the broad based contraction in WPI across all the segments – primary articles, fuel and power and manufacturing, reflects the disruption in demand arising out of the Covid lockdown,” adding that as the demand revives post the lockdown, the deflationary trend won’t sustain once it happens.
Related: