Inflation Data: Know why there is a doubling difference between wholesale and retail inflation rates?

Inflation Data: After the retail inflation rate at 7.79 per cent in April, the RBI has reduced its inflation rate for 2022-23 to 6.7 per cent. While announcing the first monetary policy in the month of April, the RBI had estimated the inflation rate to be 5.7 percent. RBI has fixed a tolerance level of 6 percent inflation rate. That is, the RBI also believes that this year the inflation rate will be higher than its tolerance level. That is, inflation will persecute the common people.

Why is there a difference in the figures of wholesale and retail inflation?
To determine the inflation rate, RBI considers the data of retail inflation. While it is also true that for the last 13 months, the wholesale price based inflation rate has remained in double digit figures. In April 2022, it has reached the highest level of 9 years. In April, the WPI based inflation rate stood at 15.08 percent, which is almost double the retail inflation figure of 7.79 percent. Let us tell you that the retail inflation rate is released by the Ministry of Statistics, while the wholesale price based inflation rate is released by the Ministry of Commerce. If these figures are released by the two departments of the government, then the question arises that why there is such a difference in the figures of wholesale inflation and retail inflation?

Producer-manufacturers are hesitant to put the burden on consumers
In fact, to measure the figure of wholesale price inflation, the average prices of goods and services are fixed on the basis of the wholesale market. Whereas the figure of retail inflation is determined according to the prices of goods and services which are directly available to the consumer in the retail market. The doubling of the wholesale price base inflation rate to the retail inflation rate shows how producers or manufacturers are under pressure to increase costs but are reluctant to pass on the burden to consumers. In 2020-21, the wholesale price based inflation rate was 1.3 percent, which has increased to 13 percent in 2021-22. They believe that if they put the burden on the consumers, then it will increase the retail inflation, due to which the demand for their product will decrease.

Government oil companies suffer loss on selling petrol and diesel
For example, crude oil is trading at $ 120 per barrel in the international market. But the government oil companies are incurring losses on selling petrol and diesel because they have not passed the full burden of the increased crude oil prices to the consumer. If the government tail companies do not increase the prices of petrol and diesel at the retail market ie at the petrol pump, the retail inflation rate will remain low. At the same time, many FMCG companies have not passed the burden completely on the consumers, despite the increase in cost. They are selling their product packets by shrinking or reducing its weight. After the increased cost, increasing the prices will reduce the demand for the product.

There is less demand in the country
In fact, the demand has decreased in the country, due to which FMCG companies to consumer durables and auto companies are facing the consequences. Private consumption, which accounts for 57 per cent of GDP, has seen a decline of 3 per cent in the fourth quarter of 2021-22. It is believed that when the demand increases, then the companies will consider increasing the price. Till then, the difference between the wholesale and retail inflation figures will remain the same.

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