India’s Retail Inflation in December 2021

January 17, 2022

The retail inflation in India increased to 5.59% in December 2021. This is the highest in the last five months. The inflation data was released by the Ministry of Statistics and Programme Implementation.

About the increase in retail inflation

The inflation rate is measured by Consumer Price Index. In December 2020, the retail inflation in India was 4.59%. Later in July 2021, the inflation increased to 5.59%. In October 2021, it was 4.49%. In November 2021, the retail inflation increased to 5.8%. With the December inflation at 5.59%, the Consumer Price Index has remained within the tolerance level set by the RBI. According to the target set by RBI, the inflation level is to remain between 2% and 6%.The target is being maintained for more than two years now.

Current Scenario

The food inflation has increased to 13.35% in November 2021. It was 14.35% in October 2021. In December 2020, the food inflation was 3.41%. The clothing and footwear inflation were at 8.3%. Housing inflation was at 3.61%. Fuel and light inflation was at 10.95%.

Reason for increase: Base effect

The inflation increased because of unfavourable base effect. Base effect happens when the choice of reference or base level impacts the comparison results between data. Say price index is 100, 150 and 200 in the period A, B and C respectively. Assume the increase is 50 in the period A to B. This gives 50% increase. Now the increase in period B to C is same. However, here the increase will be 33.33%. This is due to the large difference in bases, 100 Vs 150. Price Index is the average of prices of goods and services in a region.

Inference

As long as the inflations stays between 2% and 6%, the RBI and its monetary policy committee will focus on prioritizing the growth, maintaining policy support and provide sustainability to recovery.

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