WPI inflation surges past CPI as West Asia conflict fuels input costs: Crisil

India is witnessing a sharp divergence between wholesale and retail inflation, with wholesale price inflation (WPI) accelerating far ahead of consumer price inflation (CPI) amid rising global commodity and energy prices triggered by the West Asia conflict, according to a report by Crisil. 

The gap between the two inflation measures is not new. Historically, CPI inflation has largely remained in positive territory while WPI has fluctuated between inflation and deflation due to its greater sensitivity to global commodity cycles. Data over the past 15 fiscal years showed significant divergence particularly during FY16 and FY21, the latter driven by disruptions caused by the pandemic. 

In April 2026, WPI inflation surged to 8.3%, sharply higher than the relatively benign CPI inflation of 3.5%. The spike in wholesale inflation was largely driven by rising input and energy costs linked to geopolitical tensions in West Asia. 

Between March and April, CPI inflation edged up marginally from 3.40% to 3.48% while WPI inflation more than doubled from 3.9% to 8.3%, highlighting the growing pressure on producers and manufacturers. 

WPI more volatile than CPI 

Economists note that WPI inflation has historically been far more volatile than retail inflation. Between fiscals 2017 and 2026, the volatility of WPI, measured through standard deviation, was nearly three times higher than that of CPI. The divergence stems from the differing composition and coverage of the two indices. 

WPI tracks price movements in wholesale markets and reflects the economy’s production structure, whereas CPI measures the prices consumers pay for goods and services. 

Importantly, WPI excludes the services sector, which accounts for more than half of India’s economy, while CPI includes both goods and services. 

WPI is also more directly exposed to global commodity shocks, particularly movements in crude oil and industrial raw materials. Analysts said the current spike in wholesale inflation is closely linked to disruptions caused by the ongoing West Asia conflict, which has impacted commodity prices and global production chains. 

Wholesale inflation likely to remain higher 

Analysts expect the divergence between WPI and CPI to persist through the current fiscal year, marking a reversal from the previous fiscal when retail inflation remained higher than wholesale inflation. 

Higher wholesale inflation typically transmits gradually into retail inflation, though the extent varies depending on demand conditions and the output gap. 

Minutes of the Monetary Policy Committee’s February 2021 meeting cited empirical analysis showing that a 1% rise in WPI inflation for non-food manufactured products leads to an estimated 0.20% increase in CPI inflation for core goods. However, the pass-through to overall core inflation and headline CPI inflation tends to be lower. 

Non-food manufactured inflation accelerated sharply to 5% in April from 3.7% in March, signalling rising cost pressures for industry. 

Retail inflation seen rising to 5.1% 

Analysts expect retail inflation to rise to around 5.1% in the current fiscal year, compared with 2% in the previous fiscal, driven by several factors. Rising wholesale inflation is increasing input costs for manufacturers, putting pressure on corporate margins. Companies are likely to pass on at least part of these higher costs to consumers to protect profitability. 

Persistently elevated global crude oil prices are also expected to push up domestic fuel prices, including petrol, diesel and compressed natural gas. At the same time, a weakening rupee is increasing the cost of imported inputs, further adding to inflationary pressures. 

Food inflation may also come under strain due to weather-related disruptions, including heatwaves and the possibility of a below-normal monsoon linked to El Niño conditions. Additionally, the low statistical base from fiscal 2026, when retail inflation averaged just 2%, is expected to amplify the rise in headline CPI inflation during the current year.