Indian Economy
Retail Inflation Dropped
- 14 Apr 2020
- 5 min read
Why in News
According to the Consumer Price Index (CPI) data released by the National Statistical Office (NSO), the retail inflation in March 2020 dropped to 5.91% due to decrease in demand and lowered food prices.
Key Points
- Retail inflation (or CPI-based inflation) decreased to 5.91% in March 2020 from 6.58% in February 2020.
- The retail inflation rate was based on 66% of the usual price quotations as the nationwide lockdown to counter Covid-19 pandemic had led to suspension of fieldwork for price collection after March 19,2020.
- The inflation rate in March 2020 remained within the Reserve Bank of India’s (RBI’s) medium-term target of 4±2% for Consumer Price Index (CPI) inflation.
- This was due to suppressed demand, especially for non-essential items, as the lockdown was imposed towards the end of March,2020.
- This inflation range (4% within a band of +/- 2%) was recommended by the committee headed by Urjit Patel in 2014.
- Fuel and Light segment: The inflation rose to 6.59% from 6.36% in February 2020.
- Food inflation moderated to 8.76% from 10.81% in March 2020.
- The food price inflation of various items like vegetables, spices, pulses continue to be in double digits.
- Pressure is expected due to the shortages witnessed in different centres with mandi arrivals being affected due to lockdown.
- According to economists, inflation is expected to be brought down by low energy prices and subdued economic activity. However, the food price inflation of 8.7% will tend to increase.
- It is expected that the Reserve Bank of India (RBI) undertakes further repo rate cuts, though inflation may not remain the primary deciding factor in view of the other economic impact due to Covid-19.
- Repo Rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.
- When RBI increases the repo rate, this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
- The RBI reduces the repo rate in the event of a fall in inflationary pressures. Ideally, a low repo rate should translate into low-cost loans for general masses.
Inflation
- Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
- Inflation measures the average price change in a basket of commodities and services over time.
- Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
- However, a moderate level of inflation is required in the economy to ensure that production is promoted.
- In India, the Ministry of Statistics and Programme Implementation measures inflation.
- In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes, respectively.
- The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
- The CPI has five sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
The National Statistical Office
- NSO is the central statistical agency of the Government mandated under the Statistical Services Act 1980 under the Ministry of Statistics and Programme Implementation.
- It is responsible for the development of arrangements for providing statistical information services to meet the needs of the Government and other users for information on which to base policy, planning, monitoring and management decisions.
- The services include collecting, compiling and disseminating official statistical information.
- All business operations in NSO are done in compliance with international standards, procedures and best practices.
