Rising wholesale inflation tells us there is no free meal

The 18% increase in the price at which the WPI index is classified as a mineral oil has accelerated prices. This category makes up 7.95% of the total index. These include cooking gas, petrol, diesel and jet fuel.

Petrol and diesel prices rose by 18.48% and 18.27% respectively. This is the effect of rising oil prices. The price of Indian basket crude oil averaged in March last year. 33.36. This is on average in March 2021 per barrel. 64.73.

In March 2020, the price of oil collapsed mainly because the global economy was considering an impending collapse in economic activity due to the outbreak of the Kovid epidemic. In April 2020, the price will drop from 90 to 19.90 per barrel.

Beyond this, the total excise duty on petrol and diesel increased between March 2020 and March 2021. In March 2020, excise duty on petrol 19.98 per liter. In March 2021, it was at 32.98 per liter. When it comes to diesel, excise duty has jumped 15.83 per liter from Rs 31.83 per liter.

This was mainly done to help the government. Tax revenues are collapsing post-Kovid and the additional excise duty has helped the government increase tax revenue.

As the old clich says, there is no free meal in economics. Fuel prices have risen as a result of government profits, which has led to inflation.

Manufacturing products, which accounted for 64.23% of the WPI index, rose 7.34% in March. When it comes to current WPI Data Index, Which contains inflation data from April 2012, the highest inflation ever seen on manufactured products.

There is a reason for the increase in global prices of the basic metals (iron, copper, lead, zinc, etc.) used in the manufacture of different products over the past year. This is mainly because global investors are buying them to protect themselves from the huge money printing that central banks around the world are doing.

Also, the governments of many rich countries have announced infrastructure projects to revive their economies, raising the prices of these metals and their alloys such as steel. The primary metals manufacturing group and its subgroup had inflation of 16.6% in March. The price of various types of steel, which are part of this category, increased from 14.51% to 22.76%. Again, with recurring costs, there is no free meal in economics.

Motor vehicles, furniture, computer and electronic products, rubber and plastic products are some of the manufactured products that have seen price increases.

Another reason for the visible inflation in the prices of manufactured products is the rise in the prices of various fuels.

WPI inflation is expected to rise further in the coming months. Apart from the reasons described above, the base effect must be enforced. During the months of April to July 2020, prices measured by the WPI index fell. In May 2020, prices fell 3.37%. This should lead to WPI inflation in May 2021, which will double.

The important question here is whether inflation will rise through the Consumer Price Index (CPI) or the WPI feed measured by retail inflation.

Ultimately, companies make products to sell to consumers. If their manufacturing cost is rising at an unprecedented rate, they will have to send a portion of it to the end consumer, thereby increasing retail prices. Retail inflation in March 2021 stood at 5.52%.

Also, it should be noted that the non-increase in prices in 2020 has led to price increases for some sectors.

Furthermore, with the second wave of Kovid outbreaks, supply chains are likely to break, as they did in 2020, feeding both wholesale and retail inflation. On the flip side, if the second wave of Kovid continues for a while, demand for manufactured products will decline and this should reduce inflation in both wholesale and retail, although this may not be good news for companies.

Vivek Kaul is the author of Bad Money.

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