Statistical succour : On the Consumer Price Index
Policymakers cannot afford to drop their guard on inflation
The reading for retail inflation braked sharply last month to an 18-month low of 4.7%, aided in no small measure by the fact that price gains had hit an eight-year high of 7.8% in April 2022. While at the headline level inflation cooled by 96 basis points from March’s 5.66%, the month-on-month price gains based on the provisional Consumer Price Index (CPI) in April showed a quickening to 0.51%, from the 0.23% pace in March. Inflation also slowed in April on the back of a year-on-year softening in food price gains with the Consumer Food Price Index easing almost lockstep with the broader index — the reading slid 95 basis points from the previous month’s 4.79%, to 3.84%. Oils and fats were a vital contributor, with a deflation in prices widening to 12.3% last month, from 7.86% in March. Also, inflation in cereals, which has the highest weight of almost 10% in the CPI, slowed by 160 basis points to 13.7%, from 15.3% in the preceding month.
However, a closer look shows price gains accelerated sequentially in nine of the 12 subgroups of the food and beverages category that contributes almost 46% weight in the CPI basket. While vegetable prices remained in deflationary territory when compared with a year earlier, they registered 1.7% month-on-month inflation. And prices of fruits surged almost 4% from March’s levels, even as year-on-year the price gains were half that pace at 2.1%. Of concern is that prices of pulses and products as well as sugar and confectionery showed accelerations in both year-on-year and month-on-month inflation rates. With the domestic output of pulses weaker in the current crop year, the Centre has already moved to tighten its monitoring of tur and urad dal stocks held by traders, so as to head off any attempts to hoard and push up prices. It is also reportedly mulling more export curbs on sugar amid a production shortfall. To be sure, besides the Centre’s supply side measures, last year’s base effect is bound to ensure that headline retail inflation is unlikely to go back above the Reserve Bank of India’s upper tolerance threshold of 6%, at least during the current quarter. Still, there is no room for complacency. As Jayanth Varma, a member on the RBI’s Monetary Policy Committee, flagged last month, there still loom two major risks to the inflation outlook — oil prices and uncertainty on the monsoon. The heightening prospect of an El Niño forebodes the possibility of erratic or even significantly deficient rainfall impacting foodgrains production, and policymakers can ill afford to drop their guard on inflation.