Economic Survey 2022: Supply side management holds CPI inflation within target, survey notes; divergence in retail, WPI inflations to narrow down

Supply-side management kept prices of most essential commodities under control during the year, the Economic Survey 2022 noted. The retail inflation, as measured by Consumer Price Index-Combined (CPI-C) moderated to 5.2 per cent in 2021-22 (April-December) from 6.6 per cent in the corresponding period of 2020-21, the Economic Survey 2021-22 said.

Retail inflation has been well within the target limits of 2-6 per cent. The Survey states that this was largely attributed due to the easing of food inflation. Food inflation, as measured by the Consumer Food Price Index (CFPI), averaged at a low of 2.9 per cent in 2021-22 (April-December) as against 9.1% in the corresponding period last year.

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Major drivers of retail inflation have been miscellaneous and fuel & light group. Contribution of miscellaneous increased to 35 per cent in 2021-22 (April – December) from 26.8 per cent in 2020-21 (April – December).

According to the Survey, within miscellaneous group, subgroup of ‘transport and Communication’ contributed the most, followed by ‘health. On the other hand, contribution of food & beverages declined from 59 per cent to 31.9 per cent.

The Survey says that a “refined” Core inflation has been constructed to exclude the volatile fuel items. The items of “petrol for vehicle” and “diesel for vehicle” and “lubricants & other fuels for vehicles”, in addition to “food and beverages” and “fuel and light” have been excluded from headline retail inflation.

Since June 2020, refined core inflation has been much below the conventional core inflation, indicating the impact of inflation in fuel items in the “conventional” core inflation measure.

The Economic Survey was presented by the Finance Minister Nirmala Sitharaman on Monday in the Lok Sabha. It was prepared by Chief Economic Adviser (CEA) V Anantha Nageswaran.

The Survey notes that the gap between rural and urban CPI inflation declined in 2020 as compared to the higher gaps witnessed from July 2018 to December 2019. The factor largely responsible for divergence, for brief time periods, is the component of food and beverages.

Meanwhile, the Wholesale Price Index (WPI) inflation has shown an increasing trend and has remained high during the current financial year touching 12.5 per cent during 2021-22 (April – December). The Survey describes that part of the high inflation could be because of a low base in the previous year as WPI inflation has been benign during 2020-21.

The Survey observes that Crude petroleum & natural gas sub group under WPI has witnessed very high inflation and stood at 55.7 per cent in December 2021. Within manufactured food products, edible oils were a major contributor.

Global Inflation:

The Economic Survey says that in 2021, inflation picked up globally as economic activity revived with opening up of economies. Inflation surged from 0.7 per cent in 2020 to around 3.1 per cent in 2021 in the advanced economies.

Inflation in the USA touched 7.0 per cent in December 2021, the highest since 1982. In the UK, it hit a nearly 30 years high of 5.4 per cent in December 2021. Among emerging markets, Brazil witnessed inflation of 10.1 per cent in December 2021 and Turkey also saw double digit inflation touching 36.1 per cent. Argentina has been experiencing inflation rates above 50 per cent during the last 6 months.