First came the decline in global oil and commodity prices. Now, the marked easing in global supply chain stress, which is lowering pressure from other costs for manufacturers.
CRISIL’s input-output cost index — which has fallen to a seven-month low —reflects this. This indicates the second-round effects of high cost of production on CPI inflation may be fading, finally.
Earlier this week, India’s Consumer Price Index-based (CPI) inflation print for May came in at a softer 4.3% (vs 4.7% in April). The Wholesale Price Index (WPI) release brought further cheer. It had sunk deeper into deflation (-3.5% vs. -0.9%).
While both measure inflation in the economy, the WPI tracks movement in costs of manufacturers, while CPI tracks prices for consumers. Unlike WPI, CPI covers services as well. A sustained sharp increase in WPI inflation over time seeps into CPI inflation, as manufacturers tend to pass on higher costs to protect their margins.