Inflation remains above 6% in June

Inflation remains above 6% in June

Subject: Economy

Context: According to data released by the Ministry of Statistics and Program Implementation, retail inflation had touched a six-month high in May 2021. It has remained at 6.3% in June 2021.

Concept:

• Inflation has exceeded the Monetary Policy Committee’s target of 4 (+/-2) %, for the second straight month.
• At present, the RBI has a target for retail inflation or CPI of 4% with a margin of 2 percent on either side.
• This has led to questions over whether the panel can continue with its accommodative stance to help revive growth.
• An accommodative stance means RBI will cut rates to inject money into the financial system whenever needed.
• A change in the stance to ‘neutral’ means RBI will alter rates in any direction to control the money supply in the system.
• If the RBI cuts the interest rate, it may further lead to an increase in retail inflation. For containing inflation, RBI should raise interest rates. But raising interest rates at this stage would be catastrophic for India’s GDP growth.
• Economists have stressed that the lack of fiscal policy action to cool prices could cause a faster unwinding of RBI’s growth-supporting approach to interest rates.

Consumer Price Index / Retail Inflation

• It measures price changes from the perspective of a retail buyer.
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
• The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
• Four types of CPI are as follows:
• CPI for Industrial Workers (IW).
• CPI for Agricultural Labourer (AL).
• CPI for Rural Labourer (RL).
• CPI (Rural/Urban/Combined).
• Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
• Base Year for CPI is 2012.
• The Monetary Policy Committee (MPC) uses CPI data to control inflation.