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News:
- The latest data of the Wholesale Price Index show a sharp surge in wholesale inflation in June.
Important facts:
2. The data, show a 54-months high of 5.77%, are a cause of concern.
3. The reasons for high inflation are given below:
- Rising crude oil prices.
- Inflation in the fuel and power group has quickened every month since February to June.
- Inflation in food articles, especially vegetables.
- Manufacturing products are also worrying wider inflationary trend.
4. Higher WPI inflation will have following implications:
- It will add pressure on the RBI to raise interest rates.
- Undermine the pace of GDP growth.
- The WPI is not primary focus in the RBI’s inflation targeting approach to monetary policy formulation now.
- The role of consumer price index remains economically significant.
- The measure of wholesale price gains is the key deflator in computing the index of industrial production.
- Wholesale price index is also used to deflate gross domestic product at current prices.
