Analyzing India's CPI: Inflation Insights
India's retail inflation rate has seen a notable increase, rising to 0.71% in November from October's record low of 0.25%. At first glance, this may seem alarming, but a deeper analysis reveals a more complex picture of the country's economic health.
The primary factor contributing to the low headline inflation has been food prices, which have been on a downward trend for the past six months. In November, food inflation recorded a negative 3.91%, slightly better than October's negative 5.02%. However, when looking at month-on-month changes, food prices actually rose by 0.5% compared to October. This is crucial for households, as they are more concerned about daily and monthly price changes rather than year-on-year comparisons.
Key food items, particularly vegetables, saw an increase of 2.6% from October to November. This highlights a disconnect between the low inflation rate and the actual experiences of consumers, who may find their grocery bills rising despite the overall inflation statistics appearing favorable.
Next, let’s consider core inflation, which excludes volatile items like food and fuel. This measure is critical as it reflects underlying price pressures in the economy. The core inflation rate stands at 4.4%, suggesting a rise in demand. However, this figure can be misleading. It includes items like gold and silver, which experienced unprecedented inflation rates exceeding 50% in November. These items, along with fuel, constitute about 3.5% of the Consumer Price Index (CPI) basket, distorting the overall inflation picture.
If we exclude gold, silver, petrol, and diesel, we arrive at what economists term ‘core-core’ or ‘super core’ inflation, which has fallen to a new record low of 2.4% in November. This indicates that genuine price pressures are quite weak, influenced by a variety of factors including recent Goods and Services Tax cuts and overall demand weaknesses.
Understanding these nuances in the CPI data is crucial for gauging the real state of the Indian economy. Policymakers and consumers alike need to look beyond the headline numbers to comprehend the underlying trends affecting their financial well-being.
