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Prices and Inflation 181

of consumers and households, in case of WPI series, weights of the item basket are derived by
calculating the net traded value to the domestic production by adding net imports to domestic
production.

5.26 The weights and the importance of specific commodity groups vary significantly in the
CPI and WPI. While in CPI, food and beverages have the highest weight (45.9), in WPI, the
manufactured group has the highest weight (64.2). The weight of fuel group is much lower in
CPI (6.8) as compared to WPI (13.2). Fuel in CPI is also partially reflected under miscellaneous
group under ‘transport and communication’. The miscellaneous group in CPI, which makes up
about a fourth of the index (28.3), includes services like education, health, recreation, and goods
such as gold jewellery. Services are not included in WPI.

5.27 Retail food inflation rose sharply during 2020 due to supply chain disruptions. As supply-
side bottlenecks eased and effective supply side measures were taken particularly for items
like pulses and edible oils for which imports have been high, food inflation witnessed a decline
in 2021 and was 4.0 per cent in December 2021. Average food inflation is at a low of 2.9 per
cent in 2021-22 (April-December) as against 9.1 per cent in the corresponding period last year.
As against a weight of 45.9 in CPI, food articles have a weight of only 24.4 in the WPI (Food
articles in primary group plus those in manufactured group). The high weight of food in the CPI
makes CPI more responsive to changes in food prices over WPI.

5.28 As stated above, WPI assigns a large weight to manufactured products and ‘fuel and
power’ group. With the near shutdown of industrial activity across nations for long periods on
account of the pandemic, energy and inputs demand witnessed a sharp decline and led to a dip
in manufactured products inflation. However, with reopening up of the economies worldwide,
unanticipated increase in energy prices and emergence of industrial input cost pressure and
high freight costs led to a sharp spike in WPI inflation in 2021. This was reflected in high WPI
inflation in the fuel group and manufactured sector during the year. Thus, while on the one hand,
low food inflation pulled down CPI, on the other hand high energy and input prices pulled up
WPI based inflation rate (Figure 17).

Figure 17: YoY Inflation cycles in retail food and wholesale energy prices

50.0
40.0
Inflation rate (yoy) (per cent) 20.0
30.0

10.0
0.0
-10.0

-20.0 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21
-30.0
CPI_Food & beverages(YoY) WPI_Fuel and Power(YoY)

Source: NSO, MoSPI and OEA, DPIIT