Retail inflation in India witnessed a significant increase in June, reaching 4.81%, primarily due to a sharp surge in vegetable prices. The inflation index for rural areas stood at 4.72%, while for urban areas, it was 4.96%.
In May, retail inflation had dropped to a two-year low of 4.25%. However, it rose to 4.7% in April and 5.7% in the previous month. According to data released by the Ministry of Statistics and Programme Implementation on Wednesday, the provisional index number for vegetables rose from 161.0 in May to 180.6 in June. Vegetables carry a weightage of 6% in the overall retail inflation calculation.
The rise in inflation can be partly attributed to the recent surge in tomato prices across the country. The increase in tomato prices is not limited to a particular region but is reported nationwide, with prices reaching as high as Rs 150-160 per kilogram in major cities.
In response to the spike in tomato prices, the Central government directed its agencies, NAFED and NCCF, to procure the staple vegetable immediately from mandis (wholesale markets) in key growing states such as Andhra Pradesh, Karnataka, and Maharashtra.
Apart from vegetables, the indices for meat and fish, eggs, pulses and products, and spices also witnessed an upward trend. It is worth noting that retail inflation in India had reached its peak at 7.8% in April 2022, driven by reductions in food and core inflation. In contrast, some advanced countries experienced multi-decade high inflation rates, even surpassing the 10% mark.
The Reserve Bank of India’s (RBI) consistent tightening of monetary policy since mid-2022 has contributed to the significant decline in India’s inflation figures. Retail inflation in India remained above the RBI’s 6% target for three consecutive quarters before finally falling within the RBI’s comfort zone in November 2022.
Under the flexible inflation targeting framework, the RBI is considered to have failed in managing price rises if the Consumer Price Index (CPI)-based inflation remains outside the 2-6% range for three consecutive quarters. With a few recent pauses, the RBI has raised the repo rate by a cumulative 250 basis points since May 2022 in its battle against inflation.
Increasing interest rates is a monetary policy tool that typically helps curb demand in the economy, thereby assisting in reducing the inflation rate.
Switching to wholesale inflation, it remained in the negative zone for the second consecutive month in May, hitting a three-year low of -3.48%, compared to -0.92% in the previous month. The decline in wholesale inflation can be attributed to decreases in cereals, wheat, vegetables, potatoes, fruits, eggs, meat and fish, oilseeds, minerals, crude petroleum and natural gas, and steel, among others.
The government releases wholesale price index numbers on a monthly basis, usually on the 14th of each month or the next working day. These index numbers are compiled using data from institutional sources and selected manufacturing units across the country.
The negative wholesale inflation reported for May is the first occurrence since July 2020. Wholesale inflation has been on a downward trajectory, with March recording 1.34% compared to 3.85% in February. Overall, wholesale inflation stood at 8.39% in October and has gradually declined since then. Notably, wholesale price index (WPI)-based inflation had remained in double digits for 18 consecutive months until September.