Page 213 - economic_survey_2021-2022

Prices and Inflation 187

India is a major producer, consumer, and exporter of cotton. Therefore, the prices of domestic
cotton and international prices are closely linked. The following figure shows the trends in
international cotton prices. Figure 4F shows the high correlation (0.9) between WPI inflation
in cotton yarn and international inflation in raw cotton.

Figure 4E: International cotton price (A Index)

2.9
2.7

2.5
2.3
$/kg 2.1

1.9
1.7

1.5
1.3
Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 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

Source: World Bank

Figure 4F: WPI inflation in Cotton Yarn and international
inflation in Cotton (January 2018 – December 2021)

30 Correlation: 0.9
WPI inflation in Cotton Yarn (yoy) (per cent) 15 5 0
25
20

10

-5

-10
-15
-40 -30 -20 -10 0 10 20 30 40 50 60 70
YoY growth in international Cotton price (per cent)

Source: World Bank and OEA, DPIIT
The high inflation rate reported in the manufactured Group in the WPI is therefore significantly
attributable to “imported inflation” resulting from high prices of imported inputs. High freight
costs and longer delivery times further exacerbated the price pressure on imported inputs.