Food, services push up retail inflation

Wholesale inflation remained in negative zone for the 12th straight month and was estimated at 3.8% although the gap with retail inflation, which was estimated at positive 5%, narrowed marginally Stock Market Trading Tips

Ask any housewife to choose between the two indices and, much like the RBI, she would quickly opt for retail inflation. After all, for any household it is the price you pay at the retail store that matters, not what things cost in the wholesale market. 

So, what explains the gap between the two? A lot of it has to do with the way the two indices are constructed. In the case of wholesale price index (WPI), for instance, food items have a relatively smaller weight than they have in the consumer price index (CPI). Food is a part of both the primary articles group as well as of manufactured goods in the WPI. But primary food articles (like vegetables, fruits, eggs or raw meat) have a 14.3% weight assigned to them and food products (like biscuits, flour or bread) have under 10%, making a total of less than 25% weight for all food items put together Himanshu Tiwari Astrologer Blog


Thus, three-fourths of the WPI consists of non-food items. "There is a sharp decrease in metal prices and there is a disinflationary trend in manufactured goods, which is reflected in WPI," said D K Joshi, chief economist at Crisil. 

In contrast, the CPI attaches much more weight to food - at over 46%. In addition, housing has an over 10% weight in urban areas. So, changes in rental value - and most leases come with a clause allowing for around 10% annual escalation - are reflected. Then, there are other services, such as health, education and recreation, which usually see periodic increases in prices. For instance, at the start of every academic session, most schools increase fees. All of these get reflected in the CPI, but not in WPI Indian stock market astrology prediction

SBI chief economist Soumya Kanti Ghosh, however, believes that CPI too may not be reflecting the true price picture. One, he said, pulses were the main driver of inflation. "CPI inflation is currently being driven entirely by a narrative called 'pulflation'," he said in a note. In addition, he warned that there may be an element of over-statement given that discounts in the e-commerce space may not have been captured accurately. "We have (SBI) constructed a price index that takes into account the prices being offered by online mega stores and have re-estimated the CPI inflation. Our results indicate that only by considering the discount prices and that too for a select group of products, the CPI inflation would be at least 25 basis points lower than the actual CPI numbers," the note said. 

That's a view even the RBI's Technical Advisory Committee on Monetary Policy shared when in September it pointed out that "with vendors engaged in e-commerce offering low prices, retail inflation may be lower than what the headline number suggests". Even so, it cannot be anywhere near as low as the WPI numbers suggest Commodity Market Astrology Tips