Consider the following statements regarding economic survey 2022-2023:

1.    There was diversion of Wholesale Price Inflation (WPI) and Consumer Price Inflation (CPI) but later it adopted the trend of convergence.

2.    Effect of imported input costs and the difference in relative weights of the two indexes were the causes of such tendencies.

3.    During the decline of WPI, the CPI had an upward journey.

Which of the statements given above is/are correct?

Solution

Wholesale Price Inflation (WPI): WPI started to increase in 2022 with a peak value of 16.6% in May 2022 (as economic activities resumed post pandemic and the Russia-Ukraine conflict alleviated it more) and it slipped to 5.0% by year end. Hence, statement 1 is correct.   WPI and CPI trends: Since 2021, there had been a divergence between the WPI and the CPI indexes, followed by a trend of convergence.   Reasons for divergence: The difference in relative weights of the two indexes and the lagged effect of imported input costs on retail prices.   Reasons for convergence: A cooling in WPI inflation of commodities such as crude oil, iron, aluminum etc. along with the rise in CPI inflation (fuelled by the rise in services cost). An important measure of demand-pull inflation - core inflation - remains sticky. Hence, statement 2 is correct.   Consumer Price Inflation (CPI): The index numbers used to calculate the retail inflation of a nation constitute the CPI, which is also known as the "market basket", and is responsible for tracking the shift in prices at the level of the household. Wholesale Price Inflation (WPI): The index numbers used to measure the change in the overall price of goods before they are sold at retail prices constitute the WPI. Global economic slowdown and interest rate increases brought down commodity prices, contributing to a substantial decline in wholesale price inflation. Thus, input price pressures on Indian manufacturers abated. Even as inflation abated at the wholesale level, there has been a pass-through of previously high input costs onto retail prices, so CPI was on rise. Hence, statement 3 is correct. Core inflation remains sticky at nearly 6 percent and reflects the second-round effects of the supply shocks witnessed earlier this year.