![]() In response, developed economies were left with no option but to raise interest rates. The spectre of stagflation loomed large on the horizon. A convalescing world economy was left to confront unprecedented rates of inflation. Prices soared to a decadal high and ate into household budgets, in turn prodding Central Banks to tighten monetary policy. In turn, this aggravated cost-push inflation in the country.ĥ.3 As the pandemic receded, the conflict in Russia-Ukraine broke out, bringing in its wake worldwide inflation, fuelled mostly by surging prices of crude oil and other commodities. The pandemic delivered a larger shock on supply than it did on demand, through supply-chain disruptions in the case of essential goods, food, medicine and industrial goods. In recent years, India’s inflation rate has been well-behaved, lying tamely below the RBI target rate of 4 per cent from 2017 to 2019.ĥ.2 In 2020, supply-side disruptions pushed inflation beyond the RBI’s upper tolerance limit of 6 per cent. The perils of inflation are felt more in developing economies, where necessities have a higher share in the consumption basket than in developed countries. We are confident that authorities would remain vigilant and be as proactive as they were in 2022 should inflation pressures re-emerge in India in 2023.ĥ.1 Rising prices are always a cause of concern for policymakers as they hurt the common man the most. The overshoot of inflation above the upper end of the target range in India was one of the lowest in the world. India’s retail inflation rate peaked at 7.8 per cent in April 2022. In India, the government and the central bank took decisive measures to cap the rise in prices. In general, the year 2022 was marked by a return of high inflation in the advanced world after three to four decades, depending on the country. A lot depends on industrial input prices: they may ease, but on the flip side, their delayed pass-through to consumer prices may contribute to the stickiness of core inflation. In general, climate across the world has become increasingly erratic, further fortifying upside risks to food prices. Milk prices are also expected to spike, reflecting high feed costs. The RBI forecasts elevated domestic prices for cereals and spices in the near term, owing to supply shortages. Central Government has undertaken fiscal measures like reduction in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition of export duty on rice, reduction in import duties and cess on pulses, rationalisation of tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer stock for onion and pulses and rationalisation of import duties on raw materials used in the manufactured products. RBI’s Monetary Policy Committee increased the policy repo rate under the liquidity adjustment facility (LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between May and December 2022. There have been significant variations in retail inflation rates among the States and Union Territories (UTs) of India.Īccording to Housing Price Index (HPI) published by National Housing Bank (NHB), the overall increase in composite HPI assessment and HPI market price in Quarter Ending (QE) September 2022 over QE September 2021 indicates a revival in the housing finance sector. ![]() An important measure of demand-pull inflation – core inflation – remains sticky. ![]() However, the gap between the two measures of inflation has reduced since then, demonstrating a tendency towards convergence. The divergence between a relatively high Wholesale Price Index (WPI) inflation and lower Consumer Price Index (CPI) inflation widened in May 2022 primarily owing to a difference in relative weights of the two indices and the lagged effect of imported input costs on retail prices. In contrast, major Western countries, which pumped stimulus during the pandemic periods, continue to grapple with high levels of inflation. Prompt and adequate measures by the Government of India and the Reserve Bank of India (RBI) have reined in the rise in inflation and brought it within the Central Bank’s tolerance limit. The rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in crop harvests due to excessive heat in some parts of the country. A rising phase up to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. Consumer price inflation in India went through three phases in 2022.
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