Transmission Mechanism
WPI to CPI
Cost-push inflation originating at the wholesale level can transmit to consumer prices through two channels:
- Pass-through to consumers: If producers and retailers pass on higher input costs through price increases, CPI rises with a lag (typically 2-4 months). This is the standard inflationary transmission.
- Margin compression: If competitive pressures prevent firms from raising prices, they absorb the cost increase — compressing profit margins. This protects consumers in the short run but can suppress investment and output over time.
- Administered prices: Fuel prices in India are partially administered (LPG, kerosene subsidised; petrol and diesel deregulated but subject to excise duty adjustments). Government decisions on excise cuts can break the transmission chain — as seen in 2022 when excise duties on petrol and diesel were cut to cushion global crude price spikes.
- The global crude shock from West Asia tensions is an imported inflation driver — external to domestic monetary policy but transmittable through domestic fuel pricing policy.
● Tracked since March 31, 2026 · last seen May 14, 2026 · updates as the daily brief publishes
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