From the Urijit Committee Report an interesting chart came about - what contributed to WPI inflation over the years.
In the 80s, it was manufactured goods that drove inflation. And inflation started to rise dramatically after 1988 and peaked when India had to devalue and reform the economy in 1991. Even there, it wasn’t so much about fuel - food and manufactured goods drove inflation.
In recent times, the contribution of manufactured goods (which is 65% of the weight in the index) has come down substantially. Fuel has gone up and food items are high, but not as high as 2009, and not as high as in the 80s.
Excel’s having a tough time dealing with negative values but here’s the contributions on a 100 scale.
As you can see, the purple area has gone done, and it’s the green area that’s growing. That’s fuel for you, and fuel prices continue to go up.
Will we go back to high manufactured goods inflation? We’ve seen that happen in the past, when manufactured goods contribution has come down tremendously, it’s always risen back up sharply.
I just hope we don’t see the kind of manufactured goods inflation we’ve seen in the past. However, the monetary expansion of these days doesn’t give me too much to hope for!