India's 3 inflations: Clues from prices on consumption, profits & China dependence, Pg15

Key Highlights:

• India's Consumer Price Index (CPI), Wholesale Price Index (WPI), and Producer Price Index (PPI) all showed increased inflation in June compared to May.
• CPI inflation rose to 4.38% in June, crossing the 4% mark for the first time in 17 months.
• The rise was primarily driven by higher food inflation and elevated fuel prices, influenced by weak rains and the West Asia war.
• Core inflation, which excludes volatile food and fuel prices, remained subdued at 3.9% in June.
• India is experiencing "imported deflation" from China due to falling Chinese Producer Price Index (PPI) and increased supply chain dependence.

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Detailed Insights:

• WPI inflation increased to 9.87% in June from 9.68% in May, while output PPI edged up to 9.57% from 9.38%.
• The Reserve Bank of India (RBI) targets headline CPI inflation at 4%.
• Economists suggest that subdued core inflation indicates weak consumption demand in the economy.
• India's economic growth, exceeding 7%, has been primarily driven by investments, specifically Gross Fixed Capital Formation (GFCF), rather than private consumption.
• China's PPI has been in negative territory since October 2022, contributing to lower prices for non-food, non-fuel, non-precious metal goods imported by India.
• India's goods imports from China now exceed $130 billion annually, representing close to 3.5% of India's GDP.
• GST rate cuts also contributed to subdued core inflation over the past year, though this low base effect is expected to diminish.
• Restaurant and cafe inflation sharply rose to 6.94% in June due to higher commercial LPG prices, indicating a second-round impact.
• The manufacturing sector has absorbed increased input prices, as evidenced by a decline in output PPI despite a jump in input PPI, suggesting weak consumer demand.

Key Concepts Involved:

• Consumer Price Index (CPI): Measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
• Wholesale Price Index (WPI): Measures the average change in the prices of goods at the wholesale level, reflecting producer prices.
• Producer Price Index (PPI): Measures the average change over time in the selling prices received by domestic producers for their output.
• Core Inflation: A measure of inflation that excludes volatile items like food and energy prices to provide a clearer picture of underlying price trends.
• Gross Fixed Capital Formation (GFCF): A macroeconomic indicator that measures the total value of a country's new or existing fixed assets acquired by businesses, governments, and households.