RBI watching effect of WPI inflation on CPI infation

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Mumbai, Oct 27: The Reserve Bank of India (RBI) will be watchful of the transmission effect of the wholesale price index (WPI) based inflation via supply chain on the consumer price index (CPI) based inflation, said deputy governor, Rakesh Mohan.

“Previous episodes of oil prices increases were due to supply shocks. Unlike them, now, demand effect, emanating from Asia, particularly China, is also partly responsible for the oil price rise,” said Dr Mohan at a function organised by the Bombay Chamber of Commerce and Industry and the Fixed Income Money Markets and Derivatives Association of India. The deputy governor addressed the participants on ‘Mid-term Review of the Annual Policy 2004-05.’ Annual inflation, measured by variations in WPI, on a point-to-point basis, rose from 4.6% at end-March to 8.3% by end-August 2004. It has since come down to 7.1% by October 9. On an average basis, annual inflation based on WPI was 6.2% as on October 9, compared with 4.9% a year ago. The annual price increases were relatively high in the case of four commodities — iron ore, iron and steel, mineral oils, and coal mining.

Annual inflation, measured by variations in CPI for industrial workers, on a point-to-point basis, was 4.6% in August 2004 against 3.1% a year ago. On an annual average basis, inflation as reflected in CPI was 3.4% in August 2004 as against 4.0% a year ago.

The Annual Policy says that during the current year, the CPI-based inflation has remained significantly lower than WPI inflation. “While this could largely be attributed to the difference in coverage, the pass-through effect of international prices has considerably weakened the association between the two inflation rates,” it said.