National CPI headline inflation at 13.8 percent for May 2022 was recorded at the highest ever since January 2020. Core inflation is highest in well over two years. The Wholesale Price Index (WPI) is the highest since at least in 13 years. And worst of all – this could all very well be a beginning to what appears a very rough ride ahead for consumers. Things are just warming up.
The year-to-date headline inflation has now gone past 11 percent. No matter what the policy circles keep telling about the medium-term inflation expectations well “anchored” – there seems little respite on offer. For now, or much later. Mind you, what appears to be just the beginning of months of high inflation, is not coming from a low base either. Consumers have faced a relentless onslaught of high prices for most of the last three years.
On to the details now. As expected, the headline inflation is carried by rise in food prices, mostly non-perishable. On month-on-month basis, wheat flour contributed to most of the price increase, having risen by 10 percent over previous month. With a considerably large weightage, second only to fresh milk, in the food basket, the impact is telling. The perishable items expectedly underwent negative change as the Ramadan effect ended.
Among non-food items, decline of 15 percent in electricity rates month-on-month raised quite a few eyebrows, linking it to sinister play. Only that there is nothing fraudulent in here, as the PBS revised methodology takes into account monthly fuel charges adjustment. The FCA for March to be collected in May at Rs2.8/unit was down 40 percent from a month ago – and that translates into a 15 percent decline in overall tariff – based on weighted average consumption methodology across different slabs.
And now that fuel prices have been increased, and more rounds of significant increase are in order – expect the fuel sub-index to lead the way from hereon. The direct inflationary impact will be significant, even though the overall wight of motor fuel in the consumption basket is only around 3 percent. The bigger worry is the indirect impact – which is likely to impact almost all major food items.
Look no further than the WPI, where the index for transportable goods has shot up by 62 percent year-on-year. It goes without saying the WPI increase will eventually feed into retail prices, and more often than not the increase at retail level is irreversible. There is also the small matter of recent round of currency depreciation to start reflecting in prices. Pulses, tea, palm oil will be the largest casualty. There is no running away from sustained double-digit inflation for many a month it seems.
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