Retail inflation, as measured by Consumer Price Index-Combined (CPI-C) inflation, in India, in 2021-22 (April-December) has declined to 5.2 per cent as against 6.6 per cent during April-December 2020-21.
The decline in retail inflation was led by easing of food inflation.
Food inflation averaged at a low of 2.9 per cent in 2021-22 (April to December) as against 9.1 per cent in the corresponding period last year.
Wholesale inflation based on Wholesale Price Index (WPI) rose to 12.5 per cent during 2021-22 (April to December). This has been attributed to:
Low base in the previous year,
Pick-up in economic activity,
Sharp increase in international prices of crude oil and other imported inputs, and High freight costs.
Divergence between CPI-C and WPI Inflation
The divergence peaked to 9.6 percentage points in May 2020.
However, this year there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0 percentage points in December 2021.
This divergence can be explained by factors such as:
Variations due to base effect,
Difference in scope and coverage of the two indices,
Price collections,
Items covered,
Difference in commodity weights, and
WPI being more sensitive to cost-push inflation led by imported inputs.
With the gradual waning of base effect in WPI, the divergence in CPI-C and WPI is also expected to narrow down.
As supply-side factors play an important role in determining inflation of India, following long-term policies can be beneficial:
Changing Production Patterns: Encouraging farmers to shift from cultivation of rice and wheat to pulses and oilseeds would help ensure that the country is self-reliant in pulses and oilseeds and also assist in reducing import dependence.
Calibrated Import Policy: A long-term consistent approach is mandated for ensuring predictability in the quantity of pulses being produced abroad and exported to India.
Focus on Transportation and Storage Infrastructure for Perishable Commodities: Better storage and supply chain management is required to ensure availability in lean season and reduced wastages of perishable essential commodities to reduce the seasonal spikes in prices for consumers, glut for the farmers in times of good harvests due to lack of marketing infrastructure, resulting in distress sales.
