Data | Parsing the inflation story of the past year

Inflation: Pulses displayed for sale at wholesale grocery market Khari Baoli, Delhi

Inflation: A display of pulses for sale at the wholesale grocery market Khari Baoli, Delhi | Photo Credit: Sushil Kumar Verma

latest Annual Report released by RBI The factors and disruptions driving inflation levels around the world are highlighted. It also identifies specific items that impact inflation across various components such as food, fuel and core inflation.

In 2022, global inflation is set to reach its highest level in decades in both advanced economies and emerging markets. This uptick was largely attributed to a significant increase in food and energy prices due to supply chain disruptions following the war in Ukraine.

International food prices have moderated since the May 2022 peak on improving supply conditions for edible oils and cereals. Nevertheless, it remained higher than before the war as trade restrictions and adverse weather conditions continued to affect food production in major producing countries.

Changes in global commodity prices resulted in a rise in consumer price inflation in advanced economies (AEs) and emerging market and developing economies (EMDEs), leading to monetary policy tightening throughout the year.

Chart 1 | The chart shows inflation in different countries/regions over the past six years.

During the period 2022-23, India faced a significant increase in inflation. Retail inflation remained above the upper limit of the inflation target for several months between January and October 2022. In April 2022, inflation peaked at 7.8%, driven by a sharp increase in three major categories: food, fuel and core inflation (excluding food). and fuel). The increase was a result of supply disruptions, higher global commodity prices and currency depreciation.

When supply chain pressures eventually normalized and costs came down due to a fall in global commodity prices, inflationary pressures eased. However, it shot up again in the first two months of 2023 due to an unexpected rise in grain prices, which moderated in March 2023.

chart 2,The chart shows the inflation of various core components in India over the years.

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Inflation in the food and beverages category, which accounts for 45.9% of retail inflation, fluctuated between 4.6% and 8.4% due to increase in prices of global food and fertilisers, heat waves, rising cost of farming inputs and seasonal price pattern – Ups and downs happened.

In the first half of the year, India experienced a spike in food inflation, fueled by higher prices of vegetables, animal proteins, cereals and related products. However, inflation moderated by the second half.

Chart 3 | The chart shows inflation across major food sub-groups.

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Inflation in food and beverages averaged 6.7% during the period, compared to 4.2% in the previous year, with five sub-groups rising (chart 3, However, food inflation declined in the remaining seven sub-groups.

Fuel inflation remained in double digits for most part of the year due to higher prices of domestic LPG and kerosene in line with internal prices. However, inflation moderated due to a fall in global crude oil prices. Inflation excluding volatile food and fuel, or core inflation, showed a modest increase to an average of 6.1% in 2022-23 – a marginal increase from 2021-22. It reached a peak of 7.1% in April 2022 and remained around 6% through May 2022. Inflation in the transport and communication sector moderated gradually after a sharp increase in Q1:2022-23.

Chart 4 | The chart shows the drivers of retail inflation excluding food and fuel.

chart 4 In 2022-23, over 70% of items show a broad-based rise in core prices, with rates expected to rise by over 4%. Inflation in clothing and footwear increased by an average of 9.5% during this period.

Source: Annual Report 2022-23 released by Reserve Bank of India

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