​Deceptively benign, Pg6

Key Highlights:

• India's March retail inflation (CPI) increased marginally to 3.4% from 3.2% in February.
• The Wholesale Price Index (WPI) climbed to a 38-month high of 3.88% in March.
• Rupee depreciation of about 2.5%-3% against the U.S. dollar has amplified imported inflation.
• Exports contracted by about 3%-4% year-on-year and imports by about 5%-6% YoY in March.

Detailed Insights:

• The divergence between CPI and WPI is driven by factors like rupee depreciation, rising fuel prices, and supply chain disruptions due to geopolitical tensions.
• The Consumer Food Price Index (CFPI) rose moderately from roughly 3.4% in February to about 3.8% in March, showing muted reflection of wholesale price pressures on food prices.
• Exporters, especially MSMEs, are redirecting output to the domestic market due to export contraction and policy relaxations, creating localized supply gluts and delaying price pass-through.
• The IMF's latest World Economic Outlook flags rising global recession risks and trims India’s FY27 growth forecast to around 6.2%.
• The current situation presents an opportunity for India to accelerate its shift to renewable energy to mitigate the vulnerability of oil-import-dependent economies.

Key Concepts Involved:

• Consumer Price Index (CPI): Measures the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Wholesale Price Index (WPI): Measures the changes in the prices of goods at the wholesale level, reflecting the supply side of the economy.
• Stagflation: An economic situation characterized by slow economic growth and relatively high unemployment accompanied by rising prices (inflation).

CPI VS WPI