The National Statistical Office (NSO) recently reported a significant spike in the country’s retail inflation, which hit 6.09% during June 2020. The rise is primarily attributed to the price escalation of various commodities like pulses, meat, oils, spices, and other products.
Retail Inflation Dynamics
Retail inflation, gauged by the Consumer Price Index (CPI), experienced a forceful upsurge due to an increase in prices of certain goods. Pulses led this trend presenting an annual growth of 16.68% in June. Other segments such as meat and fish recorded a rise of 16.22%. Commodities like oils and fats surged by 12.27% while spices saw an increment of 11.74%.
Exceeding RBI’s Inflation Margin
This retail inflation outreached the stipulated upper margin of 6% set by the Reserve Bank of India (RBI). The Central Government has directed the RBI to regulate inflation within the range of 4±2%. Such an inflation limit, i.e., 4% within a band of +/- 2%, was proposed by the committee under Urjit Patel’s aegis in 2014.
Consumer Food Price Index Data
NSO also made the Consumer Food Price Index (CFPI) data public which calculates the metamorphosis in the food basket prices, quantifying inflation. CFPI recorded 7.87% in June while the figure for May was revised to 9.20%. The decrement stems from the relaxation of supply-related problems after the lockdown was lifted.
Inflation Amidst COVID-19
Inflation data for April and May hasn’t been disclosed by the Government, owing to the nationwide lockdown enforced due to the COVID-19 pandemic spread. The routine collection of CPI data through price collectors’ site visits was put on hold during this period.
Interpreting Inflation
Inflation implies an increase in the prices of everyday goods and services such as food, clothing, transport, housing, and more. It tracks the average alteration in commodity and service prices over a specific timeframe. However, moderate inflation is needed to boost production levels.
Measuring Inflation in India
In India, inflation dynamics are evaluated by two primary indices – Wholesale Price Index (WPI) and CPI, which measure wholesale and retail-level price changes respectively. The NSO under the Ministry of Statistics and Programme Implementation oversees this task.
Consumer Price Index: A Closer Study
CPI reflects price variations from a retail buyer’s standpoint. It analyzes the cost difference of goods and services that Indian consumers buy, including food, medical care, education, electronics and more. CPI factors in several sub-groups such as food and beverages, fuel and light, housing, clothing, bedding, and footwear. Notably, the Monetary Policy Committee uses CPI data to regulate inflation.
Four distinct types of CPI include:
1. CPI for Industrial Workers (IW)
2. CPI for Agricultural Labourer (AL)
3. CPI for Rural Labourer (RL)
4. CPI (Rural/Urban/Combined)
The first three are compiled by the Ministry of Labour and Employment’s Labour Bureau. The fourth index is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation, with a base year set at 2012.