Falling WPI, easing goods CPI and corporate margins

• Consumer Price Index (CPI) inflation tends to be in the positive territory, while Wholesale Price Index (WPI) inflation can swing to the negative (deflation) as well — as seen now
  
• CRISIL MI&A data from the June 2016 quarter shows corporate profit margins typically improve when WPI inflation falls
  
• Consumers of goods, too, benefit from lower input costs, as evident from the drop in goods CPI inflation
  
• But with revenue growth slowing, the incremental prop to company margins will abate. Goods CPI inflation would tend to stay soft amid slowing growth and reduced pricing power
  
• Overall, CPI-based headline inflation may not decline despite softer goods inflation because goods have only 34% weight in the gauge, compared with 39.1% for food and 26.7% for services, which are currently under pressure. Demand pressure is emanating from the knock-on effect of a strong rebound in services. To boot, monsoon poses an upside threat to food inflation
  

Wholesale price inflation came in at -4.1% for June 2023, the lowest in 92 months. It could fall further if global oil, commodity and other raw material prices slip anew.

While producers of oil and commodities such as metals are facing the heat of slack market prices, companies using these products as inputs — and consumers of goods made from them — are heaving a sigh of relief after two years of rising-price heat.