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Wholesale inflation in India is now near the same level as it was during the 1991 economic crisis

Wholesale inflation in India is now near the same level as it was during the 1991 economic crisis
Finance2 min read
  • The wholesale inflation stood at 12.96% in the financial year 2021-2022.
  • This is close to the level that it was during the 1991 economic crisis.
  • This is due to factors such as the second wave of COVID-19, the Russia-Ukraine war and supply chain issues.
The Narendra Modi-led government has a major headache to deal with – inflation. While it’s not necessarily entirely the government’s doing, wholesale inflation is now near the same level as it was during the 1991 economic crisis that changed India forever.

Wholesale inflation stood at 12.96% in the financial year 2021-22. Several factors like the second wave of COVID-19, the Russia-Ukraine war and other supply chain bottlenecks have resulted in increase in inflation, making essentials like food items and commodities more expensive.

In 1991, when India was undergoing a major economic crisis that threatened to push the country to default, the wholesale inflation stood at 13.7% for FY 1991-92.

Inflation has been surging across the world as a combination of multiple factors has continued to strangle the global supply chains, leading to a surge in prices across the world. Markets around the world have been underperforming, fearing a hike in interest rates by the US Fed. as the Biden administration tries to bring inflation under control.

In India, too, the Reserve Bank of India has shifted its focus from stimulating growth to mitigating the impact of rising inflation. This has put a spanner in the government’s efforts to post healthy GDP growth – the RBI has lowered the GDP growth forecast to 7.2% from 7.8% for the fiscal year 2022-23.

How the rise in wholesale inflation has impacted the common man’s pocket

At the end of the day, though, the common man suffers as a result, with prices of commodities and essential items like edible oil, pulses, spices, vegetables and fruits surging all over India.

Wholesale price index (WPI), which is used to calculate wholesale inflation, tracks prices of commodities sold in bulk between businesses, instead of goods bought by individuals.

What the WPI-based inflation measures is the increase or decrease in price that businesses pay to buy goods. This is an important metric because if the prices that businesses pay increase, then it is passed on to retail buyers like you and me.

One of the major contributors to wholesale inflation is the drastic increase in crude oil prices, and as a result, the prices of petrol and diesel have surged by nearly 20% when compared to the same time last year.

Fuel prices have a spillover effect on the prices of food items, commodities and everything else since transportation costs are one of the major contributors to the price of products.

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