The last positive WPI inflation was recorded in March at 1.41 percent.
Also Read: Year Ender 2023: Financial Health Check, How Indian Middle Class Redefined Spending
“Positive rate of inflation in November 2023 is primarily due to increasing in prices of food articles, minerals, machinery & equipment, computer, electronics & optical products, motor vehicles, other transport equipment and other manufacturing, etc.,” the Commerce and Industry Ministry recently said in a statement.
Impact of Inflation
Food inflation spiked to 8.18 percent in November, from 2.53 percent in October. Inflation in onions zoomed 101.24 percent in November, from 62.60 percent in the previous month.
Inflation in vegetables was 10.44 percent, as against (-)21.04 percent in October.
In paddy and fruits, inflation was 10.44 percent and 8.37 percent respectively. Inflation in potatoes remained low at (-)27.22 percent in November.
During the month, inflation in manufactured products stood at (-)0.64 percent, fuel and power (-)4.61 percent and non-food articles (-)3.20 percent.
The RBI in its monetary policy review in December 2023 said that there would be an uptick in the inflation data for November and December due to pressure on food prices.
“Going ahead, the inflation outlook would be considerably influenced by uncertain food prices. High-frequency food price indicators point to an increase in prices of key vegetables, which may push CPI inflation higher in the near term,” RBI Governor Shaktikanta Das had said.
Barclays Research said the increase in wholesale food prices was more than in retail food prices, indicating wholesalers did not pass through the entire price rise to consumers, which may be reflected in elevated retail food prices in December unless supply (particularly of vegetables) increases.
Cost of Living
Vikas Singh, chief collection officer, Propelld, highlighted that rising inflation often leads to an increase in the cost of goods and services, affecting the overall cost of living for individuals and families and reducing the affordability of essential items.
“Food inflation, which accounts for around half of the total consumer basket, jumped to 11.51% in July – up from just 4.49% in June In July, vegetable prices increased by a staggering 37% year on year, annual food-inflation rate hit 11.5% in July, highest in over 3 years, pushing the overall inflation rate to a 15-month high of 7.4%,” Singh said.
He underlined that rising fuel prices directly contribute to inflation by increasing the cost of goods and services. Also, inflation is eating the purchasing power of the income group. If wages are not keeping pace with the rising cost of goods and services, he added.
Impact on Basic Needs & Savings
Citing a survey conducted by Rakuten Insight in March 2023 in India, Singh said about 64 percent of respondents aged 55 years and above stated that rising inflation affected their ability to pay for necessities such as food, clothing, and healthcare.
In comparison, 63 percent of respondents in the same age group reported that they could not save due to inflation. Inflation has impacted the value of savings and investments. If the rate of return on savings or investments is lower than the inflation rate, individuals may experience a decrease in their purchasing power.
Singh added that inflation also has a huge impact on India’s agricultural sector.
“It reduces agricultural product profitability and purchasing power, increasing risks and debts on farmers. People have adjusted their consumption habits in response to high inflation which is not good for the economy.”
Inflation and The Global Economy
Mukesh Kharat, assistant professor of marketing and international business, at KJ Somaiya Institute of Management, said that the uncertainty and recessionary pressures are the current problems of the global economy, but the Indian economy remains resilient in light of this volatility.
Kharat added that RBI maintains to continue pause rate hikes and keep the benchmark repo rate unchanged at 6.50% despite rising prices of vegetables especially due to bad weather.
“Multiple steps have been employed in the past to smoothen inflation such as the reduction of excise duty on petrol and diesel and cuts on import duty of essential raw materials and crude edible. By increasing the repo rate RBI tries to control inflation to the demand and supply of goods and services thus forcing the banks to increase the rate of interest on deposit rates and loans,” Kharat added.
Price Control Key Element For Central Banks
Rajeev Anantaram, professor of economics, IMI New Delhi, also highlighted that central banks (RBI in India), commonly prioritise the control of price levels as their top policy priority, despite its short-term adverse impact on economic growth and unemployment.
“This sentiment is commonly shared by both academic and industry-based economists. Inflation (the change in price levels) is darkly referred to as a ‘second tax’ for its impact on both present and future levels of consumption and investment decisions of firms. Long story short, a high-cost economy is simply unsustainable and by extension, uncompetitive.”
Anantaram added that compared to many emerging markets, the RBI has typically managed to keep price levels under control, barring minor episodes where inflation reached alarming levels.
Core Inflation Remains A Challenge
Anantaram said India’s Consumer Price Inflation for October 2023 came in at 5.8 percent, slightly below the RBI’s ‘comfort level’ of 6 percent. Core inflation (the inflation rate after deducting food and fuel items from the consumption basket) came in even lower.
“This elicited a lot of joy in policy circles because while India has done well in keeping the prices of food and fuel items under control, it has struggled to keep ‘core’ inflation, which tends to be sticky and structural, within acceptable bounds. Keeping a lid on core inflation augurs well for the Indian economy.”
The inability to bring food inflation under control remains a pressing problem. Food items comprise almost 54 percent of the average Indian family’s consumption basket by value and expectedly, persistently elevated food levels cause a great deal of distress to the average Indian household.
Weather And Supply Chain
Weather patterns have become extremely erratic, leading to widespread fluctuations in the production of virtually all types of crops ranging from cereals to fruits & vegetables, Anantaram underlined.
Anantaram also pointed out that the non-existence of flat supply chains for food items is another reason for a large deviation between the wholesale and retail prices of food articles.
“Thus, if food inflation in India is high, it is for reasons that combine factors beyond the scope of the government and the central bank (global climate change) and those that can be controlled by the government through better-designed policy,” Anantaram added.
Word Of Caution!
Anantaram elaborated that while the control over price levels is being celebrated, it could reflect a darker downside, namely low demand in the economy.
“India’s average annual GDP growth rate over the last two years is 6 percent, well below the potential GDP of 7.5 percent. Even the most recent 6 percent is driven by a ‘bounce’ from the deep economic slowdown caused by the pandemic. When this realisation, coupled with crippling job losses is taken into account, there may be less to celebrate, than if inflation were the only macroeconomic parameter that mattered,” Anantaram said.
Meanwhile, retail or consumer price-based inflation rose at its fastest pace in three months at 5.55 percent in November, driven by a spike in food prices.
The RBI had projected retail inflation to average 5.4 percent this fiscal.
The Asian Development Bank (ADB) in its December outlook said India’s inflation forecasts for 2023 and 2024 are in line with recent data and are still within expectations. It forecasts retail inflation at 5.5 percent for this fiscal.
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