Optical relief: On headline inflation  

For most households, the moderation in headline inflation brings little respite 

Updated - April 15, 2023 10:31 am IST

Published - April 15, 2023 12:20 am IST

The pace of price rise faced by Indian consumers eased below the central bank’s upper tolerance threshold of 6% in March. The 5.66% retail inflation level recorded in March was last seen in December 2021. That was followed by a sustained spell of high inflation that escalated after the Russia-Ukraine conflict that began in February 2022, and peaked at an eight-year high of 7.8% in April. Including last November and December, March marks only the third occasion in 15 months when inflation was within the Reserve Bank of India’s (RBI’s) mandated tolerance range of 2% to 6%. The RBI, which had to send an explanation to the government on why the target was missed for three successive quarters — for the first time since the inflation targeting framework was introduced — hit a pause on interest rates this month after a streak of hikes. It now expects inflation to average 5.2% in 2023-24 (lower than the 5.3% it projected in February). As it stands, the average inflation between January and March has turned out to be 6.21%, far higher than the RBI’s February projection of 5.9%. For the full year gone by, inflation averaged 6.66% vis-à-vis the 6.5% the RBI expected.

The central bank and the government may now be sanguine about headline inflation staying below 6%, but that is in no small measure due to the statistical effects of higher numbers from the previous year’s base. In the April to June quarter, the RBI expects inflation to average 5.1%, up from 5% predicted two months ago — the same quarter had clocked a mean inflation of 7.28% in 2022. While the pace of price rise may slow down, prices are still rising at a fairly significant clip, on top of price hikes effected in the past year. There is no medium-term reversal likely in amounts people shell out for most goods and services, barring seasonally triggered changes in items such as vegetables. In fact, excluding vegetables whose prices have been falling year-on-year since November 2022, the inflation faced by consumers in March was still 6.6%. Imported inflation fell to its lowest level since November 2019 at 2.8%, which means domestic factors are still spurring prices around 6%. Fresh global shocks from oil prices and other unknowns may cause imported inflation to spike again. With cereal, spices and milk prices on the boil and worries about crop losses due to recent unseasonal precipitation (as well as fears of El Niño effects this year), food prices may continue to pinch households. There is no room to let the guard down on inflation, even if propping up growth is the priority. Squeezed consumption is hardly going to inspire investment.

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