Retail Inflation

Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Prelims and Mains focus: on the spike in retail inflation; its causes and implications

News: Retail inflation soared to a five-and-a-half-year high of 7.35% in December 2019, with the shortage of onions driving the surge.

Background

The last time retail inflation was this high was the 7.39% recorded in July 2014, just after PM Modi began his first term in office.

What led to this spike in retail inflation?

According to information released by the National Statistical Office on Monday, retail inflation based on the Consumer Price Index was only 2.11% in December 2018 and 5.54% in November 2019.

The hike in inflation in the ‘vegetables’ category was at 60.5% last month in comparison to December 2018. Onion prices were above the Rs. 100 per kg mark in many major cities last month, due to a 26% fall in production.

Overall, food inflation rose to 14.12 per cent in December as against a negative rate of -2.65 per cent in the same month of the previous year. It was also significantly higher than the 10.01% recorded in November 2019. Along with vegetables, high prices of pulses, meat and fish also contributed to last month’s spike.

Inflation targeting by the RBI

The Centre has mandated the Reserve Bank of India to keep inflation in the range of 2-6%.

The RBI, which mainly factors in CPI-based inflation, is scheduled to announce its next bi-monthly monetary policy on February 6.

In its December policy, the central bank, which had been reducing rates, had kept the repo rate unchanged citing inflationary concerns.

Source: The Hindu

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