Retail inflation easing, need to monitor imported inflation: FinMin

‘Momentum in price rise trends slowing’

February 16, 2022 11:06 pm | Updated 11:23 pm IST - NEW DELHI

Price differential: The large gap between inflation in wholesale and consumer prices, indicating weak transmission of input cost pressures to retail prices, is another aspect that would need to be monitored in coming months, the report said. 

Price differential: The large gap between inflation in wholesale and consumer prices, indicating weak transmission of input cost pressures to retail prices, is another aspect that would need to be monitored in coming months, the report said.  | Photo Credit: RAMAKRISHNA G

India’s retail inflation may have crossed 6% for the first time in six months this January, but the Consumer Price Index (CPI) has moderated sequentially over the past two months indicating a slowing momentum to price rise trends, the Finance Ministry said in a report on Wednesday.

Easing vegetable prices on account of the fresh winter crop, and better prospects for food grains output lead to an 'optimistic view on inflation', the Ministry said, though it also emphasised the need to keep a close watch on imported inflation through edible oils and crude oil and the multi-round effects they may have on the value chain.

January’s 6.01% retail inflation rate is primarily attributable to ‘food and beverages’, ‘clothing and footwear’, as well as an unfavourable base effect, said the report from the economic division of the Department of Economic Affairs in the Ministry. The average CPI inflation between April 2021 and January 2022, it pointed out, is 5.30% — well within the 6% upper limit for inflation tolerance set for the RBI’s monetary policy committee (MPC).

“Should retail inflation remain range-bound at 4.5% as projected by the MPC in 2022-23, liquidity levels in the economy will remain high and interface with low interest rates to provide easier financing options to industry and individuals. Global inflation and energy prices are likely to be influential in determining India’s rate of inflation and Government expects it to decline to eventually obtain a GDP deflator of 3.0-3.5% assumed in the Budget,” it projected.

“Combined with the expectation of WPI inflation declining significantly in 2022-23, on the back of lower global inflation and a large base effect, the GDP deflator obtains at 3.0-3.5%, as implicit in nominal GDP projection of 11.1% in Budget 2022-23,” the report said.

“CPI core inflation, after declining from 6.2% in November, 2021 to 6.12% in December, further moderated to 5.98% in January, mainly due to decrease in inflation of all major groups except ‘clothing and footwear’,” the report noted.

Inflation at the wholesale level has also been moderating for two months but remains high at almost 13% in January, ‘primarily owing to high prices for imported commodities including and especially crude oil,” the report said.

The large gap between inflation in wholesale and consumer prices, indicating weak transmission of input cost pressures to retail prices, is another aspect that will need to be monitored in coming months, the report indicated.

Noting that the third COVID-19 wave is now subsiding in the country, the Ministry said India is well poised for growth that will be ‘inclusive and large enough as well, to provide for growing levels of direct income and in-kind support to the vulnerable groups of the society’.

“Growth in exports will sustain provided the global economy does not slowdown. Imports will also grow but re-aligned to the country’s requirements of what is not available within,” it said.

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