Consumer price inflation in India went through three phases in 2022. A rising phase up to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. The rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in crop harvests due to excessive heat in some parts of the country. Prompt and adequate measures by the Government of India and the Reserve Bank of India (RBI) have reined in the rise in inflation and brought it within the Central Bank’s tolerance limit. In contrast, major Western countries, which pumped stimulus during the pandemic periods, continue to grapple with high levels of inflation.
The divergence between a relatively high Wholesale Price Index (WPI) inflation and lower Consumer Price Index (CPI) inflation widened in May 2022 primarily owing to a difference in relative weights of the two indices and the lagged effect of imported input costs on retail prices. However, the gap between the two measures of inflation has reduced since then, demonstrating a tendency towards convergence. An important measure of demand-pull inflation - core inflation - remains sticky. There have been significant variations in retail inflation rates among the States and Union Territories (UTs) of India. According to Housing Price Index (HPI) published by National Housing Bank (NHB), the overall increase in composite HPI assessment and HPI market price in Quarter Ending (QE) September 2022 over QE September 2021 indicates a revival in the housing finance sector.
RBI’s Monetary Policy Committee increased the policy repo rate under the liquidity adjustment facility (LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between May and December 2022. Central Government has undertaken fiscal measures like reduction in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition of export duty on rice, reduction in import duties and cess on pulses, rationalisation of tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer stock for onion and pulses and rationalisation of import duties on raw materials used in the manufactured products. The RBI forecasts elevated domestic prices for cereals and spices in the near term, owing
to supply shortages. Milk prices are also expected to spike, reflecting high feed costs. In general, climate across the world has become increasingly erratic, further fortifying upside risks to food prices.