Explained: What’s causing high inflation and where?

News: India’s retail inflation rose by 7.79% in April, according to the latest data released by the Ministry of Statistics and Programme Implementation.

Inflation in food items rose by even higher — 8.38% in April — according to the MoSPI’s Consumer Food Price Index.

However, the biggest jump was registered in fuel prices, which rose by almost 11 per cent in April. This is a direct impact of the higher crude oil prices being passed through to the consumers in the wake of the war in Ukraine.

What is retail inflation and why it’s significant?

Retail inflation essentially refers to the rate at which the general price level went up in a particular month (April in the current instance) over what it was in the same month a year ago.

• The change is expressed as a percentage.

Retail inflation also refers to the prices faced by consumers, and not the ones prevailing in the wholesale market.

Significance: The retail inflation level is the most important measure of inflation in India because it is this inflation rate that India’s central Bank, the RBI, targets to maintain price stability. According to the law, the RBI is supposed to keep overall retail inflation between 2% and 6%.

However, since the start of 2022, retail inflation has been trending above the 6% mark and there is a good chance that it may stay above the 6% mark for the first 9 months of the year. If that happens, the RBI will have to explain the slippage to the Parliament.

Source: This post is based on the article “Explained: What’s causing high inflation and where?” published in The Indian Express on 13th May 22.