Tale of 2 India’s Inflation- CPI and WPI

India has 2 measures of inflation (we are not the only ones) – Wholesale Price Index and Consumer Price Index. Within CPI-IW there are 4 indices based on different population categories. (see this report for details and difference).

The Inflation based on WPI has been declining and inflation based on CPIhas been rising. Here is the table: (WPI is a weekly number and rest are monthly, so I have taken monthly figure for WPI as well)

		WPI	CPI-IW	CPI-AL
2007	Jan	6.37	6.72	9.52
	Feb	6.36	7.56	9.80
	Mar	6.61	6.72	9.50
	Apr	6.28	6.67	9.44
	May	5.46	6.61	8.22
	Jun	4.53	5.69	7.84
	Jul	4.71	6.45	8.60
	Aug	4.14	7.26	8.80
	Sep	3.51	6.4	7.89
	Oct	3.11	5.51	6.99
	Nov	3.25	5.51	6.15
	Dec	3.84	5.51	5.90
2008	Jan	4.45	5.51	5.63
	Feb	5.27	5.47	6.38
	Mar	7.48	7.87	7.91
	Apr	8.04	7.81	8.88
	May	8.86	7.75	9.11
	Jun	11.82	7.69	8.77
	Jul	12.36	8.33	9.41
	Aug	12.82	9.02	10.29
	Sep	12.23	9.77	10.98
	Oct	10.97	10.45	11.14
	Nov*	8.94

* Nov-2008 average is for 3 weeks- 1 Nov, 8 Nov and 15 Nov.

The findings are quite interesting

• Throughout 2007 CPI (both) are higher than WPI. In Aug 2007 the difference is highest and then it declines gradually.
• From Apr 2008 onwards WPI is higher than CPI and reaches highest in June 2008. The difference remains high till August 2008 and then declines sharply in Sep 2008 and more sharply in Oct-2008. So, WPI was falling but CPI continued to rise sharply from Aug 2008 onwards. From Nov onwards CPI could be higher than WPI
• This is actually not a surprise as prices first change at wholesale level and the impact comes gradually at consumer level. So, say oil and food prices shot up in April 2008 leading to an rise in WPI which was then passed onto consumers later (say June 2008). And then as oil and commodity prices have declined it will take time for producers to pass on the price rises to the people.
• WPI is like Producer Price Index in other economies and CPI is there is most economies. in India, WPI is the preferred measure and in most CPI is the preferred measure. Now, on a comparison with other economies like say US, UK etc what is happening is inflation is falling across indices – PPI- CPI etc. And latest we have for developed economies is also October data. So, the data is comparable across time as well.
• In India’s case so far, we see WPI has declined sharply but CPI has continued to rise. This is also not a surprise as we hardly see any changes in prices of various goods we buy from stores. Infact, they continue to rise. Most people still ask me when will prices/inflation go down?
• It will be interesting to see the change in CPI going ahead. Would it also go down as sharply as seen in case of WPI and CPI in other economies? I am also wondering what would have been the stance of RBI if it was tracking CPI?

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