Wholesale inflation has been showing a steady rise for the last one year. The WPI (wholesale price index) has been above 10 per cent since April 2021, but according to the latest data from the Department for Promotion of Industry and Internal Trade, WPI inflation exceeded 15% in April 2022.
With such an increase in wholesale inflation, the common people may have to bear the brunt of inflation. With the rise in inflation figures, there may be pressure on the RBI to increase the repo rate, which will make all types of banking loans more expensive. At the same time, there can be a jump in the prices of food items like vegetables, milk, oil and fuel in the market.
There may be a big hike in fuel prices
This is the 13th month of double-digit growth in wholesale inflation, which was 10.7 per cent in April last year, but has now reached 15 per cent. It is clear from this increase that most of the components of the WPI are witnessing high inflation. In this, an increase is being seen on all essential goods, fuel and power and manufacturing goods. The biggest increase is expected to be in fuel prices, while food products may see a smaller increase. At the same time, there will be a 6-fold impact on all inflation.
What is the reasoning on inflation hike
According to Aditi Nair, Chief Economist, ICRA Ltd., the heat has led to a rise in the prices of perishable goods like fruits, vegetables and milk, which is accompanied by a spike. It has also given rise in the prices of tea. At the same time, it has been argued that the increase in fuel price could be a major reason for the Russia-Ukraine war. However, this is already leading to an increase in the price of fuel.
what will be the effect on people
According to the RBI, the increase in the Wholesale Price Index-food inflation has a “significant” impact on retail food inflation. In other words, when wholesale food inflation rises, it increases food prices for consumers as well. Notably, retail food inflation was already at a very high 8.3 per cent in April. In the next two months, further increase in retail food prices can be expected due to higher food inflation in the wholesale market. This is believed to lead to an increase in the number of food items.
RBI will increase repo rate
The Reserve Bank is expected to hike rates by 75 basis points in the next month. In such a situation, it will put pressure on the RBI to increase rates in high wholesale inflation. After this, an increase in the repo rate can be expected, which means that the EMI of the loan taken by you from the bank will increase further.