India’s retail inflation surged to 7.79 per cent in April, the highest since May 2014. Experts note that steeper edible oil and supply chain disruptions owing to the Russia-Ukraine war are responsible for rising prices
Inflation faced by Indians galloped for a seventh straight month to touch an eight-year high of 7.79 per cent in April, revealed data released by the government.
This high of 7.79 per cent is only second to that of 8.33 per cent in May 2014.
The spike in inflation is also almost twice the rate targeted by the Reserve Bank of India. The RBI has been mandated by the Centre to keep the retail inflation between two per cent to six per cent.
The spike has triggered concerns about India’s economic prospects going forward.
Inflation, retail inflation and more…
Before we tackle the issue of surging inflation, here’s a better understanding of exactly it means.
In simple words, 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.
As Vox explains it, inflation is when everything gets more expensive.
In India, inflation is primarily measured through Wholesale Price Index (WPI) and Consumer Price Index (CPI), also known as retail inflation.
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.
On the other hand, the goods or services sold by businesses to smaller businesses for selling further is captured by the WPI.
Inflation highs in India
Now, that the basics have been covered, let’s see what the government data says.
On Thursday, the data released by the National Statistical Office (NSO) stated that India’s retail inflation was 7.79 per cent. Additionally, India’s rural inflation was 8.4 per cent, higher than that of the urban inflation of 7.1 per cent).
Inflation in the food basket rose to 8.38 per cent in April from 7.68 per cent in the preceding month and 1.96 per cent in the year-ago month, showed the data released by National Statistical Office (NSO) on Thursday.
An analysis by IndiaSpend shows that food prices increased at 4.483 per cent every month between January 2014 and March 2022. This means that the price of a food product that cost Rs 100 in January 2013 is now almost Rs 170.
The rate of price rise in ‘fuel and light’ category in the retail inflation basket quickened to 10.8 per cent in April this year from 7.52 per cent in the preceding month.
In the ‘oils and fats’ category, inflation remained at an elevated level of 17.28 per cent (18.79 per cent in March 2022) during the month.
Vegetables witnessed an inflation print of 15.41 per cent during the month as against 11.64 per cent in March, the data showed.
Notably, retail inflation has remained above six per cent since January 2022.
Among the states, West Bengal and Madhya Pradesh recorded a much higher inflation rate than the national average, at 9.1 per cent, closely followed by Telangana and Haryana which reported inflation of about 9 per cent. By contrast, Kerala (5.08 per cent) and Tamil Nadu (5.37 per cent) clocked the lowest inflation rates in April, reported The Hindu.
What’s the reason behind the rise?
Lekha Chakroborty, professor of economics at the National Institute of Public Finance and Policy, puts it best.
Speaking to IndiaSpend, she says, “Inflation happened because of global factors like commodities (such as agricultural produce) price rise, energy price rise and interest rate hikes by the United States Federal Reserve, as well as supply side factors caused by COVD-induced lockdowns.”
The war in Ukraine has also contributed significantly to the surging inflation.
Ukraine is one of the major sunflower oil producers in the world and India imports a major portion of the commodity from the war-ravaged country.
Besides, Ukraine is a key supplier of fertiliser to India.
When prices of oil and fertiliser increase, there is bound to be a cascading effect on all other prices — which eventually the customer has to pay for.
The Ukraine-Russia war has also caused disruptions in the supply chain.
Rajeshwari Sengupta, an economist at the Indira Gandhi Institute of Rural Development in Mumbai, noted that the Russia-Ukraine war and the lockdown in China have resulted in shortages of coal for power, shortages of semiconductor chips for industry (especially cars) and international shortages (food, oil, edible oil, construction materials). She told IndiaSpend that this creates a situation where demand exceeds supply, resulting in prices rising.
In March, there were several reports of how Indians had cut down on fried food and vegetables as the Ukraine war had inflated the prices of items from edible oils to fuel.
Effects of inflation
The very immediate effect of inflation is the reduction in people’s purchasing power. It is well understood that if items keep becoming more expensive, people won’t buy or choose to ration those purchases. This, in turn, will reduce overall demand.
The common man is the worst sufferer of inflation, as he has to struggle with managing a household with limited purchasing abilities.
High inflation rates will also worsen the exchange rate. High inflation means the rupee is losing its power and, if the RBI doesn’t raise interest rates fast enough, investors will increasingly stay away because of reduced returns, reports the Indian Express.
And lastly, it leads to even higher inflation.
With inputs from agencies