Thursday, 10 Oct, 2024
By: Yash Gupte
The urban inflation also dropped to 4.85 percent in April from 5.89 percent in the previous month. A similar trend was witnessed in the rural inflation as it dropped from 5.51 percent in March to 4.68 percent in April 2023. Image Source: IANS
The consumer food price inflation has also dropped down at 3.84 percent from 4.79 Percent in March 2023 and 5.95 percent in February 2023.
India’s retail inflation, which is measured by the Consumer Price Index (CPI), eased to 18 month low of 4.70 percent in April 2023, down from 5.66 percent in March 2023. The National Statistical Office (NSO) released the All India Consumer Price Index (CPI) and corresponding Consumer Food Price Index (CFPI) for March 2023. The consumer food price inflation has also dropped down at 3.84 percent from 4.79 Percent in March 2023 and 5.95 percent in February 2023. Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services. This means that higher the CPI, higher the inflation which occurs due to the rise in prices of goods and services. The urban inflation also dropped to 4.85 percent in April from 5.89 percent in the previous month. A similar trend was witnessed in the rural inflation as it dropped from 5.51 percent in March to 4.68 percent in April 2023.
The fall in retail inflation indicates that the steps taken by Reserve Bank of India (RBI) to control the rising inflation in the country have delivered success. The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The retail inflation has come down to its lowest level since December 2021. March has been the first month in the calendar year 2023 which has witnessed the CPI falling below the 6 percent mark. According to experts, the inflation is expected to remain below 6 percent in the coming months helped by a high base, which may allow RBI to maintain pause in the next monetary policy review in June.
The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was recently increased on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
The Reserve Bank of India has put a hold to its repo rate hike spree. The Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Thursday, April 6, 2023 decided not to hike the repo rate and kept is steady at 6.5 percent. The RBI was widely expected to increase the repo rate by 25 basis points to 6.75 percent, the highest till date. The decision was announced by Shaktikanta Das, the governor of RBI in a press conference. The first bimonthly policy for FY24 was announced by the RBI monetary policy committee on April 6, concluding a three-day meeting. The MPC convened on April 3, 5, and 6 to discuss the current monetary policy, under the direction of RBI Governor Shaktikanta Das.
Source: the Ministry of Statistics and Programme Implementation
The inflation rate for food and beverages in April was 4.22 percent, while the rates for alcohol, tobacco, and other tobacco products were 3.46 percent. The inflation rate for clothing and footwear was 7.47 percent. Additionally, housing inflation in April was 4.91 percent, while fuel and light inflation was 5.52 percent. Miscellaneous inflation remained 4.92 percent. According to statistics from the Ministry of Statistics & Programme Implementation, the price information was gathered by personal visits by field employees from the Field Operations Division of NSO, MoSPI on a weekly schedule from chosen 1114 urban marketplaces and 1181 villages covering all States/UTs.
The general easing of inflationary pressures is what caused the decrease in inflation between March and April. Inflation rates for food, which make up 39 percent of the CPI basket according to data from the Centre for Monitoring Indian Economy (CMIE), have decreased from 4.8 percent to 3.8 percent. Vegetables, eggs, fish, meat, and edible oils have seen a decline in price within the food sector, whereas cereals, milk, and spices continue to see significant inflation. For certainly, the rate of inflation has moderated somewhat for both milk and cereal items. According to CMIE data, core inflation, which does not include the food and fuel components of the CPI basket, decreased from 5.95 percent in March 2023 to 5.36 percent in April.
The inflation rate crossed the RBI’s threshold of 6 percent in January (6.01 percent), which quickly jumped to 6.95 percent in March and hit the peak at 7.79 percent in April. This indicates that the prices of goods and services increased drastically in March and April. The primary reason behind the drastic increase was the disruption in supply chains caused by the Russia-Ukraine conflict. There was a drop in CPI in May, June and July as the government banned the export of wheat and sugar in order to increase its availability in the local market and cool down its prices. The retail inflation measured by the CPI came down below the mark of 6 percent in November for the first time in 2022. The fall in food prices and the implementation of the RBI’s tight monetary policy under which it has been increasing the repo rate had contributed in the decline in retail inflation in the month of November and December. But the trend was again reversed in the month of January 2023 as the retail inflation breached the mark of 6 percent and jumped to 6.52 percent. But in the month of March, the inflation declined to 5.66 percent, the lowest in 15 months and it further dropped to 4.70 percent in April, lowest in 18 months.
Vivek Rathi, Director Research, Knight Frank India a real estate consultancy firm said, “So far, high interest rates have had a moderate impact on the housing market with the affordable segment particularly taking major portion of the blow. If inflation rate trajectory gives some comfort to continue the decision on pause in this interest rate hike cycle, it will be the biggest comfort factor for the real estate industry.”
Nishi Bhatt, Founder and CEO of Millwood Kane international indicated that the RBI won’t be hiking the repo rate in near future. He said, “Going forward, a steady price trajectory of crude oil and a good monsoon year will help keep inflation in check. This is the last inflation print before the MPC meets for its review meet in June. The development will help the central bank to stay on an extended pause."
