Retail inflation continued its downward trend, reaching a one-year low of 4.75% in May, driven by a slight drop in food prices, according to the data released by the National Statistical Office (NSO). Overall inflation has moderated sequentially since January 2024, ranging narrowly from 5.1% in February to 4.8% in April.
The NSO falls under the Ministry of Statistics and Programme Implementation (MoSPI).
The Consumer Price Index (CPI), which has been declining since January, was 4.83% in April 2024 and 4.31% in May 2023, the previous low. Food inflation stood at 8.69% in May, slightly down from 8.70% in April, data showed.
According to NSO data, May 2024 marked India’s lowest CPI inflation since the same month a year ago, when it was 4.31%, consistently below 6% since September 2023.
Meanwhile, core inflation in May decreased to a record low of 3.1%, down from 3.2% in April. This decline was primarily driven by reduced housing inflation, which fell to 2.56% in May, marking its lowest level since at least 2014.
The government has mandated the Reserve Bank to maintain CPI inflation at 4%, with a margin of 2% on either side.
Earlier this month, the RBI projected CPI inflation for 2024-25 at 4.5%, with quarterly forecasts of 4.9% in Q1, 3.8% in Q2, 4.6% in Q3, and 4.5% in Q4.
NSO data also revealed higher rural inflation at 5.28% compared to 4.15% in urban areas. Among states, inflation exceeded the national level of 4.75% in Andhra Pradesh, Assam, Bihar, Chhattisgarh, Haryana, Karnataka, Kerala, Odisha, Rajasthan, Tamil Nadu, Telangana, and Uttar Pradesh. Odisha recorded the highest inflation at 6.25%, while Delhi reported the lowest at 1.99%.
NSO collects price data from 1,114 urban markets and 1,181 villages across all states and union territories on a weekly basis. In May, prices were gathered from 100 villages and nearly all urban markets.
Here’s a look at inflation rate trend from 2000 to 2024
2000: 3.83%
2001: 4.31%
2002: 3.98%
2003: 3.86%
2004: 3.82%
2005:4.4%
2006: 6.7%
2007: 6.2%
2008: 9.09%
2009: 12.31%
2010: 9.37%
2011: 8.11%
2012: 10.05%
2013: 9.38%
2014: 5.83%
2015: 4.91%
2016: 4.53%
2017: 3.59%
2018: 3.41%
2019: 4.77%
2020: 6.17%
2021: 5.51%
2022: 6.65%
2023: 4.38%
2024 (May): 4.83%
India Inflation Rate (WPI) – Last One Year Data
May 2024: 1.26%
April 2024: 0.53%
March 2024: 0.20%
February 2024: 0.27%
January 2024: 0.73%
December 2023: 0.26%
November 2023: -0.52%
October 2023: -0.26%
September 2023: -0.52%
August 2023: -1.36%
July 2023: -4.12%
June 2023: -3.48%
May 2023: -0.92%
April 2023: 1.34%
How is inflation measured in India?
The two primary indices used to measure inflation in India are the Consumer Price Index (CPI) and Wholesale Price Index (WPI).
What is CPI?
The Consumer Price Index (CPI) is a crucial metric used to gauge inflation by tracking changes in the price level of goods and services consumed by the general public. It measures the purchasing power of a nation’s currency based on a fixed basket of goods and services, which may be periodically adjusted.
Currently, India calculates CPI using data from 299 items. The CPI formula is: CPI=(Cost of a Fixed Basket of Goods and Services in the Current Year/Cost of a Fixed Basket of Goods and Services in the Base Year)×100
The CPI consists of six primary components, each with varying weights and numerous sub-components:
Food and Beverages: This category holds the highest weightage at 45% of the total index. It includes items like cereals, vegetables, milk, and pulses, with cereals alone accounting for 9.67% of the CPI.
Pan, Tobacco, and Intoxicants: This component covers products such as tobacco and beverages like alcohol.
Clothing and Footwear: Includes clothing items and footwear purchased by consumers.
Housing: Represents the costs associated with housing, including rent, maintenance, and utilities.
Fuel and Light: Covers expenses related to fuel, electricity, and other forms of energy used for lighting and heating.
Miscellaneous: This includes a variety of services such as education, healthcare, transport, and personal care products.
Among these components, food articles have the highest impact on CPI due to their significant weightage, reflecting the substantial portion of household budgets spent on food in India.
The CPI is instrumental for governments, including the Reserve Bank of India, in formulating policies to maintain monetary stability and address economic challenges. It provides insights into the rate of inflation, thereby informing decisions that impact the cost of living for citizen.
What is WPI?
The Wholesale Price Index (WPI) is another important economic indicator used in India to measure inflation at the wholesale level. Unlike the Consumer Price Index (CPI), which tracks retail prices paid by consumers, the WPI tracks the average changes in prices of goods sold in bulk by wholesalers.
For example, let’s consider a wholesale market that sells rice. Last year, the wholesale price of a quintal (100 kg) of rice was Rs 2,000. This year, due to various factors like supply chain disruptions or changes in demand, the price has increased to Rs 2,200 per quintal.
The WPI calculates the average price change for a basket of goods across various sectors such as agriculture, manufacturing, and mining. It helps policymakers and economists understand inflationary trends impacting businesses and industries.
Types of inflation in India
In India, inflation can be broadly categorized into several types based on their causes and effects. Here are the main types of inflation observed:
Demand-Pull Inflation: This type of inflation occurs when aggregate demand (total demand for goods and services) exceeds aggregate supply, leading to increased prices. It typically happens during periods of strong economic growth, increased consumer spending, or government spending.
Cost-Push Inflation: Cost-push inflation arises when the costs of production increase, causing producers to raise prices to maintain profit margins. Factors contributing to cost-push inflation in India can include higher wages, increased raw material costs, or global commodity price increases.
Structural Inflation: Structural inflation is caused by structural factors in the economy, such as supply-side constraints, inefficiencies in production, or bottlenecks in infrastructure. In India, structural inflation can be influenced by issues like agricultural productivity, logistics inefficiencies, or regulatory hurdles.
Core Inflation: Core inflation excludes volatile items like food and energy prices to better gauge underlying inflation trends. It provides insight into the long-term inflationary pressures in the economy, excluding temporary fluctuations caused by external factors.
Seasonal Inflation: Seasonal inflation occurs due to seasonal variations in supply and demand for certain goods and services. For example, agricultural products often experience seasonal price fluctuations based on crop cycles and weather conditions.
Wage-Price Spiral: This type of inflation occurs when higher wages lead to increased production costs, which in turn lead to higher prices. The cycle continues as workers demand higher wages to cope with rising prices, fueling further inflation.
These types of inflation are not mutually exclusive and can interact with each other in complex ways, shaping the overall inflationary environment in India’s economy. Governments and central banks monitor these inflation types closely to formulate appropriate monetary and fiscal policies to maintain economic stability.