Economic Survey India 2017-18: Inflation higher than expected but not threatening; what led to surge in prices

By: | Updated: January 29, 2018 2:18 PM

Headline inflation has been below 4% for 12 straight months, from November 2016 to October 2017 and CPI food inflation averaged around 1% during April -December in the current financial year, the Economic Survey 2018 said.

Economic Survey India 2017-18: Inflation higher than expected but not threatening; what led to surge in pricesEconomic Survey India 2017-18: Inflation higher than expected but not threatening; what led to surge in prices

Headline inflation has been below 4% for 12 straight months, from November 2016 to October 2017 and CPI food inflation averaged around 1% during April -December in the current financial year, the Economic Survey 2018 said. The CPI inflation declined to 3.3% during FY 2017-18 (Apr-Dec), with a broad-based decline in inflation across major commodity groups except Housing and Fuel & Light. The Survey observes that the economy has witnessed a gradual transition from a period of high and variable inflation to more stable prices in the last four years.

“Headline inflation measured by the Consumer Price Index (CPI) has remained under control for the fourth successive year,” the Economic Survey 2017-18 tabled in the Parliament by Arun Jaitley on Monday ahead of the Budget 2018 said. “Inflation was all higher than expected, albeit not threateningly so, reflecting in part higher international oil prices—India’s historic macroeconomic vulnerability.”

Also Read: India Economic Survey 2018 highlights: All key takeaways from GST, demonetisation, inflation to oil price

Food Inflation:

Good agricultural production coupled with regular price monitoring by the government helped to contain inflation, especially food inflation. The rise in food inflation in recent months is mainly due to factors driving prices of vegetables and fruits. Though the decline in food inflation is broad-based, major drivers are meat & fish, oil & fats, spices and pulses & products. Food inflation based on WPI has also declined, it averaged 2.3 per cent in FY 2017- 18 (Apr-Dec) as compared to 6.3 per cent in FY 2016-17 (Apr- Dec).

Core Inflation:

While significant moderation has been witnessed in the headline and food inflation, the CPI-based core1 inflation has remained above 4 per cent during the last four financial years.

Drivers of Inflation:

At the all India level, CPI inflation was driven mainly by food during FY 2016-17.  Housing group contributed nearly twice as much to inflation in 2017-18 (Apr- Dec) as compared to 2016-17 (Apr- Dec), while the contribution of fuel and light group in CPI inflation was thrice in the same period. The was revised house rent allowance for central government employees based on the recommendation of the 7th Central Pay Commission.

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Many States have witnessed sharp fall in CPI inflation during 2017-18, the survey noted, adding, that five states, namely, Jammu & Kashmir, Kerala, Delhi, Tamil Nadu and Himachal Pradesh recorded inflation of more than 4 per cent in FY 2017-18 (Apr- Dec). The survey said that Ten States had inflation rate lower than All India average for FY 2017-18 (Apr- Dec) with Odisha having the lowest inflation followed by Uttar Pradesh, Bihar and Chhattisgarh, respectively.

Also Read: Economic Survey 2017-18: India GDP growth rate seen bouncing back 7-7.5% in FY19

Economic Survey is an annual document of the Ministry of Finance, Government of India, and reviews the developments in the Indian economy over the previous 12 months, summarises the performance on major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.

The Budget 2018 comes against the backdrop of fiscal concerns from the 3.2% target of the Budgetary allocation, along with rallying crude oil prices on the global front. Arun Jaitley will present the Union Budget 2018 for the fiscal year 2018-19 on February 1. This will be the first Budget in the post- GST era and the last full budget from Arun Jaitley before the General Election in 2019.

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