May 31, 2023

Inflation: No Sign Of Relief

By Ashwini Agarwal
First publised on 2022-01-14 06:08:17

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Retail inflation in India, as measured by the consumer price index (CPI), was 5.6 percent in December 2021, the highest in six months. But as the wholesale price index had witnessed a record high of 14.2 per cent in November, this was bound to happen. Faced with rising input costs, manufacturers are passing on the burden to end consumers by raising product prices. Food inflation is breaking the back of the middle class consumers as prices of vegetables, cereals, edible oil, milk and bread have been upwardly revised many times in the last couple of months. For example, white bread was selling Rs 20 for a loaf of 400 gms in Kolkata a couple of months back. Now it is selling at Rs 28, after two price revisions of Rs 4 each. Similar increases have also been made to the price of milk. Prices of clothing, footwear and household goods and services are also elevated.

With the Omicron-led third wave in India excepted to infect a huge number of people and continue till February, a whole new set of restrictions will further disrupt supply chains and fuel inflation. Although the MPC of RBI had said the there was inflationary pressure and it predicted inflation to touch 5.7% before a dip, this figure is too close to the upper threshold of the RBI's inflation targeting threshold. But inflation in these troubled times has become a worldwide phenomenon with the US grappling with record inflation. In India, private consumption remains muted and is not expected to rise substantially in the last quarter. If inflation were to rise further and cross the inflation targeting threshold it would prompt the RBI, as part of its fiscal policy, to squeeze out cash from the economy in order to control it. That will crush demand further and add to the woes of the economy.