Meta- The Inflation rate in India increased from a one-year low of 5.72 percent in December to a three-month high of 6.52 percent in January.
The Consumer Price Index (CPI) reached a three-month high in January. The inflation rate surged again in January after dropping to a one-year low on December 22 and remained below the tolerance limit of 6% for two months. Some experts claim that the increase in food inflation, the increase in the price of crude oil, as well as a number of other economic problems, were factors in the surge in the inflation rate.
After a two-month break, retail inflation is now again above the 6 percent mark. The CPI inflation rate has now exceeded the medium-term target of 4% for 40 consecutive months.
CPI inflation eased to 5.88 percent and 5.72 percent in November and December, respectively, after being above the upper bound of the Reserve Bank of India’s (RBI) mandated 2-6 percent target range for the first 10 months of 2022 – a period in which the central bank failed to meet its inflation mandate. But last month, it increased much more than was anticipated.
January’s internal inflation data
Food-related components saw the biggest increase in inflation in January, rising to 5.94 percent from 4.19 percent in December.
Food inflation increased in January as a result of a negative base impact, but the increase has been much more than anticipated, pointing to an increase in price pressures.
1. An increase in food prices
According to economists, the primary cause of the rise in inflation is the price of food. On a year over year basis, the CPI food index increased from 4.2% in December to 5.9% in January. from 13.8% in December 2022 to 16.1% in January 2023, cereals and product-driven food inflation.
“The government decided to sell 3 million metric tons of wheat on the open market to lower wheat prices.” Although there have been open market sales, market prices have not decreased. According to Dr. Sunil Kumar Sinha, Senior Economist at India Ratings, “The decision to offer wheat to bulk consumers at Rs 2,350/quintal through e-auction can have some impact on open market wheat pricing.”
2. Input cost increases
The price of the fodder increases when cereal-related inflation is on the rise, increasing input expenses. According to HDFC Bank researchers, cereal inflation has finally increased because it has been trending upward for the past few months.
3. Rising costs of oil
Oil prices increased by over 2% on February 10 and saw weekly gains of over 8% as Russia announced plans to cut oil production in response to price limitations the West placed on its crude and fuel. According to economists, India’s reliance on oil imports has posed a significant barrier to the country’s ability to control inflation. “Higher energy prices and expensive food items drove inflation up.” According to economist and CEO of the wealth management company Ladderup, Raghvendra Nath, “India’s reliance on imported oil continues to have an impact on the country’s inflation.”
4. Core inflation is increasing as a result of the high gold price.
Four of the eight primary broad categories of core inflation have remained above 6%. “Core also faces a significant danger from rising gold prices and housing inflation, according to research.” Future stickiness in the core will result from more discretionary spending and the yet-to-occur pass-through of input costs to output prices, said Dipanwita Majumdar, an economist from the Bank of Baroda.
5. Exercise of pricing authority
According to economists, inequitable consumer demand is the main cause of the increase in core inflation. They also highlighted how the manufacturing industry’s pricing power has been a key factor in the stickiness of core inflation. According to analysts, the pricing power used by the manufacturing sector will only be eliminated or reduced if global commodity prices soften and the supply chain becomes more regular.
Impact of policy
The most recent inflation figures were released a few days after the Monetary Policy Committee (MPC) of the RBI raised the policy repo rate by 25 basis points to 6.5 percent, marking the sixth increase in interest rates in 10 months.
The RBI revised its inflation projection for the current fiscal year downward by 20 basis points on February 8 to 6.5 percent, with inflation expected to average 5.7 percent from January through March.
Inflation rate in India One tenth of a percentage point is referred to as a basis point.
Inflation is expected to average 5.3% from 2023 to 2024, with rates of 5% in April through June, 5.4 percent from July through September, and 5.6 percent from October through December.
Governor Shaktikanta Das almost acknowledged that economists believe the RBI’s prediction for inflation for the upcoming year is a little bit too high.
RBI would act as necessary to keep inflation rate in India within anticipated limits, says FM Nirmala Sitharaman
Nirmala Sitharaman, the finance minister, stated at a post-budget industry gathering on Monday in Jaipur that the Reserve Bank of India will take the necessary actions to maintain inflation within “expected levels.” “In emerging markets, each nation has a particular circumstance.” “I believe the RBI is keeping an eye on the Indian economy and making decisions as needed,” Sitharaman added.
For instance, in the case of pulses, the government is encouraging farmers to produce them in order to increase domestic production and has also decreased the import duty on certain pulses in order to increase local availability.
When asked if the inflation in the budget for 2023–2024 would decrease, Sitharaman responded, “The government is taking a number of initiatives to manage inflation and will continue to focus on it.”
She was there to participate in a post-budget 2023 conversation with various stakeholders.
“In order to improve the output of pulses in India during the upcoming planting season, we have taken many efforts, such as encouraging farmers to sow them,” Sitharaman told reporters today.
She continued by saying that as a quick fix, “The government has either eliminated or lowered the import duty to a single digit level wherever we are importing pulses, be they Masoor, Moong, or any other. “As a result, imports are now simple, and India now has easy access to affordable pulses.”
According to the Union Minister, “palm crude or palm refined oil has also been made available so that the supply of edible oil is easy and ample.” The import of edible oil has been nearly tax-free for nearly three years in a row.
Inflation rate in India With a reading of 6.52%, headline inflation exceeded expectations last month, breaking the RBI’s target for the first time in three months.
In the year beginning April 1, HSBC anticipates inflation will be slightly higher than the Central Bank of India’s prediction, at 5.4%. They predict core inflation, which excludes volatile food and fuel prices and is a crucial worry for policymakers, will be 5.5%.
Inflation rate in India In response to a question on including gasoline and diesel in the scope of the GST, she responded, “Petrol and diesel can be included in the GST if the GST council, which is run by the finance ministers of all states and is not under the control of any one government, takes the call.”
“The Center government has stated that we will add it as an item under GST, making it clear that this is our intention. The GST Council should now make a decision and permit a “open charcha.””
The significant flaw in India’s CPI data that experts have frequently drawn attention to-
After falling below the tolerance level of 6% for two consecutive months, the inflation rate in India as measured by the Consumer Price Index (CPI), surged once more on January 23. All central banks throughout the world have been quite concerned about inflation. The Reserve Bank of India (RBI), like the central banks of other nations, has implemented a number of steps during the past year to keep inflation in check. But do the inflation statistics for India accurately reflect the situation? When the number decreased on November 22, was there genuinely any sign of relief?
Why can Indian inflation numbers fall short of capturing the big picture?
The CPI calculates the change in the cost of items that people purchase on a daily basis. On the demand side of the economy, people are the consumers. The CPI can be used to determine the purchasing power of a country’s currency for the same reason.
A predetermined basket of goods and services is used to calculate the CPI. For instance, while determining inflation rates in India, the main factors considered include things such as food, clothing, housing, fuel, medical care, and other non-essentials.
Inflation rate in India The base year should be used when calculating price changes since the CPI calculates the average change in prices over time that consumers pay for a selection of products and services. The base year and the goods/services covered are thus two crucial factors to take into account when discussing the CPI basket.
“The accuracy of the CPI depends upon representative samples for measuring price movements, and the methods and procedures for estimating and aggregating price changes in the CPI reflect the best available techniques,” the United Nations Economic Commission for Europe (UNECE) stated in one of their research papers.
The primary flaw in India’s CPI data, which economists have frequently called attention to, is that the base year is 2012. According to UNECE, several NSOs, particularly in nations with limited capacity, only conduct weight updates occasionally, and in certain circumstances, only every 10 years or so. The relevance of the CPI is seriously questioned by the long time between updates.
Inflation rate in India, according to a number of economists and Paul A. Armknecht, an IMF price statistics expert, the rate at which the structure of consumer spending shifts will vary depending on the historical period. The types and amounts of expenditure frequently fluctuate swiftly while prices are changing quickly. The objects in the basket and their relative importance will swiftly change in such circumstances. It becomes crucial for the CPI to be able to account for these changes in order to be relevant.
Disparity in weight-age
Inflation rate in India The disparity in the weight-age distribution of goods in the CPI basket is one of the key flaws in the inflation data that economists have identified. Food inflation is to blame for the most recent increase in inflation.
Inflation rate in India Together, “food and drinks” and “fuel and light” accounted for about 60% of India’s CPI inflation. Contrarily, food weights are far lower in several industrialised nations, including the UK (9.3%), US (13.2%), Canada (15.94%), and Germany (8.5%), according to a report by the Indian Centre for Research on International Economic Relations.
Economists have noted that the inflation rate does not adequately account for the influence of technological advancement. The inflation has not been recorded in technology-related industries like finance technology or even communications.
1. Is inflation beneficial?
The prevailing consensus among economists is that economic progress requires a modest, consistent level of inflation, even though it may eventually reduce the purchasing power of your money.
2. What steps is the RBI taking to curb inflation?
By using a number of monetary policy measures, including the repo rate, reverse repo rate, bank rate, open market operations, statutory liquidity ratio (SLR), cash reserve ratio (CRR), Liquidity Adjustment Facility (LAF), and market stabilization scheme, the RBI manages inflation and deflation.
3. What is the RBI’s forecast for inflation in 2023?
A 5.3% annual rate of inflation is anticipated for the upcoming fiscal year, with quarterly rates of 5%, 5.4%, 5.4%, and 5.6%.
4. What will inflation be in the next 5 years?
US Estimated Change in Inflation Rates: Future 5 Years is at 2.90 percent, down from last month’s 2.90 percent and from last year’s 3 percent. This is below the long-term average of 3.20 percent.
5. Why is inflation in India so high?
For the country’s needs, India imports close to 80% of its crude oil. Due to the rise in the cost of raw materials, production, and transportation, high crude oil prices also result in an increase in the price of other items.
6. What threat does inflation pose?
The consumer price index (CPI) measures inflation, and when it is low, it supports a strong economy. But when the rate of inflation increases quickly, it can have a negative impact on the economy by lowering purchasing power, increasing interest rates, slowing down economic growth, and other factors.
