Decrease in India’s Retail Inflation Rate

Decrease in India’s Retail Inflation Rate

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April 15, 2023

India's retail inflation rate fell to 5.66% in March 2023, falling short of the Reserve Bank of India's (RBI) upper target of 6% in March 2023, owing mostly to a drop in food prices, particularly for vegetables. The following features stand out:

• Core inflation, excluding food and energy prices, was 5.95% in March, down from 6.12% in February

• The drop in retail inflation is a good sign for the economy

• It alleviates some of the pressure on customers who have been struggling with increased prices for necessary products and services. Furthermore, it may provide the RBI with greater flexibility in future monetary policy choices

• It remains to be seen, however, if this tendency will continue and whether the RBI will alter interest rates accordingly

Retail Inflation - Retail Inflation, also known as Consumer Price Index (CPI) Inflation, is the rate at which the Prices of goods and services that consumers buy for personal use increase over time. It measures the change in the cost of a basket of goods and services that are typically purchased by households, including food, clothing, housing, transportation, and medical care.

The following are the primary applications of CPI:

• It is commonly regarded as an indicator of inflation.

• Price stability monitoring tool.

• The Reserve Bank of India currently uses the CPI (Combined) as the baseline for its monetary policy instruments such as the Repo Rate and the Reverse Repo Rate

• According to the Monetary Policy Framework Agreement agreed between the Government and the RBI in 2015, the RBI's main purpose is price stability, and the Consumer Price Index (Combined) is used to calculate target inflation

CPIs are classified into four types:

1. Industrial Workers' CPI (IW)

2. Agricultural Labourer (AL) CPI

3. Rural Labourer CPI (RL)

4. CPI for Urban Non-Manual Employees (UNME)

The first three are collected by the Ministry of Labour and Employment's Labour Bureau. The fourth is prepared by the National Statistics Office of the Ministry of Statistics and Programme Implementation. The CPI base year is 2012. The Ministry of Labour and Employment will produce a new series of Consumer Price Index for Industrial Workers (CPI-IW) with a base year of 2016 in 2020. CPI data is used by the Monetary Policy Committee (MPC) to regulate inflation. The CPI was chosen as the RBI's primary gauge of inflation in April 2014.

Source - Financial Express