2021 in numbers: Inflation facing producers
The cost of producing goods is an important factor that determines prices for consumers. If the cost of production rises, producers are likely to pass on the additional cost to consumers, as long as it does not collapse the demand for the product to the extent that the volume of sales and profits don’t get adversely affected. It is this cost that producers face that the Wholesale Price Index (WPI) captures. How did WPI inflation fare in 2021? The following two charts explain this.
The current series of WPI starts in April 2011 and is available up to November 2021. This means that we can compare the average WPI index in the January-November period of 2021 with the years before, up to 2012. This shows that the 10.3% WPI inflation this year has been the highest since 2013, the earliest calendar year for which we can do this comparison in the new series. The second-highest WPI inflation is 6% in 2013.
This level of high inflation is first because of the 10% inflation in manufactured goods, which have a weightage of 64% in WPI. Since 2013, inflation in this group had never been even 4% in the January-November interval. At 22.5%, the inflation in the fuel and power group — which includes commodities such as mineral oils and electricity — is also the highest since 2013, much higher than in any year since 2013. The 6.4% inflation in primary articles — which includes commodities such as unprocessed food, minerals, crude oil and so on — is not the highest in the new series, but still more than double it was last year.
The data shown above itself suggests that WPI inflation is very broad-based this year. This extends even to item-level inflation. Of the 22 items that make up the manufactured goods group, January-November WPI inflation is the highest since 2013 in 10 items and the second-highest since 2013 in four. High prices of crude oil, on the other hand, have pushed up the costs of primary articles and the fuel and power group.
Moderation in the food group — it includes processed and unprocessed food in the primary and manufactured goods groups — has been one relief so far in 2021. Food group inflation was at 5.5% in January-November 2020 and is 4.7% in 2021. However, this might worsen before the year ends. Food inflation had been low this year partly because of a favourable base effect: Inflation was high in the monsoon months of 2020. In November, food inflation was at 6.7%, the highest since June. In December, this base becomes even more unfavourable — December 2020 inflation was 1.1% in this group — and can be another source of tailwinds for WPI inflation.
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2021-12-16 11:07:45