Article:
The recent data from the Consumer Price Index (CPI), released by India’s National Statistical Office (NSO), showed that retail inflation in March 2020 fell to 5.91%. This reduction was primarily a result of diminished demand and a decline in food prices. The following sections will provide an in-depth explanation of the situation.
Key Points on Retail Inflation
The CPI-based retail inflation experienced a dip from 6.58% in February 2020 to 5.91% in March 2020. This calculation was based on 66% of common price quotations since the national-level lockdown enforced to curb the Covid-19 pandemic had led to a halt in price collection fieldwork post-March 19, 2020.
This inflation rate for March 2020 is within the Reserve Bank of India’s (RBI’s) medium-term target for CPI inflation, which stands at 4±2%. The lockdown, imposed towards March’s end, suppressed demand, particularly for non-essential items, leading to this rate. This CPI inflation band was recommended by the committee spearheaded by Urjit Patel in 2014.
Inflation in Different Segments
The fuel and light segments observed a rise in inflation from 6.36% to 6.59% between February and March 2020. Conversely, food inflation moderated to 8.76% from 10.81% during this period. However, certain food items, including vegetables, spices, and pulses, continued to exhibit double-digit inflation. The ongoing lockdown has disrupted market arrivals, leading to shortages and adding pressure on inflation.
Estimations by Economists
Economists anticipate that low energy prices combined with subdued economic activity might pull down inflation. However, the standing food price inflation of 8.7% could escalate further. The RBI is expected to implement additional repo rate reductions, although inflation might not be the central deciding factor considering the Covid-19 pandemic’s economic impact.
Understanding Repo Rate
The repo rate refers to the rate at which the RBI loans money to commercial banks during a funds shortfall. An increased repo rate discourages banks from borrowing from the central bank, thus reducing the economy’s money supply and assisting in controlling inflation. In contrast, the RBI decreases the repo rate when inflationary pressures drop. Ideally, a low repo rate should lead to cheaper loans for the general populace.
Understanding Inflation
Inflation signifies an increase in the prices of common goods and services over time, decreasing a country’s currency unit’s purchasing power. This could potentially slow down economic growth, but a moderate inflation level is necessary to stimulate production. In India, inflation is primarily gauged by two main indices — Wholesale Price Index (WPI) and CPI.
The Role of the National Statistical Office
The NSO is the central statistical agency of India, mandated under the Statistical Services Act 1980 and operating under Ministry of Statistics and Programme Implementation. Its primary role involves providing statistical information services to support the Government and other users in making critical decisions based on policy, planning, monitoring, and management. The services include gathering, compiling, and disseminating official statistical information while adhering to international standards, procedures, and best practices.