13th June 2024 (13 Topics)

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India's Consumer Price Inflation

Context

The recent report on India's consumer price inflation for May 2024 has garnered attention due to its implications for the country's economic landscape. Consumer price inflation is a crucial indicator of the cost of living for citizens and plays a significant role in shaping monetary policy decisions by the Reserve Bank of India (RBI).

Key Findings:

Easing of Consumer Price Inflation: In May 2024, India witnessed a slight easing in consumer price inflation, reaching a one-year low of 4.75%, down from 4.83% in April.
Stagnant Food Prices: Food prices, however, remained unchanged, with a significant spike of 8.7%, particularly impacting urban households with a sharper rise of 8.83%.
Comparison to Previous Year: This is in contrast to the previous year when retail inflation stood at 4.31%, with food prices rising less than 3%.
Surge in Vegetable Prices: Vegetable prices surged by 27.3% in May, contributing to the overall inflationary pressure, while other food items like cereals, eggs, fruits, and pulses also experienced significant inflation rates.
Challenges for Monetary Policy: Despite retail inflation staying below 6% since September 2023, it remains above the central bank’s target of 4%, posing challenges for monetary policy management.
Projections and Policy Response: Projections suggest a potential moderation in food inflation, which could lead to a policy response from the RBI, such as a reduction in the policy interest rate to mitigate economic pressures.

Fact Box: About Consumer Price Inflation (CPI)

CPI refers to an increase in the price level of a selected basket of goods and services over a select period of time.
It measures retail inflation by collecting data on the prices of goods and services that are consumed by the retail population of the country.
CPI is used as a:
- macroeconomic indicator of inflation
- tool by the central bank and government for inflation targeting and for inspecting price stability
- deflator in the national accounts.
Main component: food and beverages, followed by cereals and pulses, and milk and products.
CPI formula: (Price of basket in current period / Price of basket in base period) x 100

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India's Consumer Price Inflation

Key Findings:

Fact Box: About Consumer Price Inflation (CPI)

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