Report by Alekhya Chavan
In November, India’s retail inflation increased to 5.55%, up from 4.87% in October.
This rise is attributed to higher food prices, according to government data. The rate of price rise in the food basket was particularly noteworthy, reaching 8.7% in November. Despite the increase, these figures still fall within the comfort zone set by the Reserve Bank of India (RBI).
What is Retail inflation?
Retail inflation is like a specific kind of measurement that tells us how the prices of goods and services are changing over time. Another name for it is “CPI,” which stands for Consumer Price Index. It’s like keeping track of a basket of things people commonly buy to see if they’re getting more expensive.
CPI inflation is measured every month in India by a group called The National Statistical Office (NSO), which is part of the Ministry of Statistics and Programme Implementation (MoSPI).
Why did the prices go up?
> One reason for inflation is an increase in the cost of making things, a phenomenon often linked to the supply side. If the ingredients in your snacks become more expensive for manufacturers, they might pass those costs on to consumers. For example, if the price of wheat, a crucial ingredient, rises due to factors like bad weather affecting crops, it becomes more expensive to produce goods made from wheat, like bread or snacks.
> On the other side of the equation is demand. Imagine everyone suddenly wants the same toy. As more people desire a particular item, companies might find it challenging to keep up with the demand. When demand outstrips supply, prices tend to rise. This is basic supply and demand – when something is in high demand but limited in supply, its price goes up.
In November 2023, the spike in retail inflation was, in part, driven by supply and demand dynamics. The cost of production, especially in the food sector, contributed to the overall increase. For instance, if bad weather affects crops, the supply of certain food items decreases. Simultaneously, if there’s a surge in consumer demand for these items, the prices rise even more.
RBI’s take on this matter
Despite the recent increase in prices during November, the Reserve Bank of India (RBI) assures that the figures remain within their acceptable range. The RBI closely monitors inflation, and according to their established benchmarks, the current inflation rate is considered acceptable.
Looking ahead, the RBI anticipates the Consumer Price Index (CPI) inflation to be around 5.4% for the fiscal year 2023-24. This projection serves as an informed estimate, indicating the RBI’s expectations regarding the trajectory of inflation in the coming months.
Understanding these economic principles helps us make sense of why prices change and why it matters in our daily lives. It’s like solving a puzzle – the pieces are supply, demand, production costs, and consumer choices.