StatsGuru: 21-October

RBI policy will have to deal with the thorn of inflation

As the Reserve Bank of India (RBI) prepares to take another look at its monetary policy stance, it will be deeply concerned by the state of Indian inflation. As Table 1 shows, the rate of retail inflation, as measured by the CPI, has been in or just below double digits for most of 2013. For a while, as Table 2 shows, wholesale inflation, as measured by the WPI, had run well below the CPI, and in fact had dipped below five per cent in the middle of the year, approaching the RBI's comfort zone. But over the past few months it has risen again, and is now at 6.5 per cent year-on-year.

Part of the reason for the WPI's recent increase is visible in Table 3: The sudden increase in food inflation year-on-year. This is puzzling, given that the monsoon has been more than adequate. Indeed, the differences between the food component of the WPI and the CPI, and the volatility of the former, is generally worthy of investigation. It is worth noting that the recent spike in food inflation is not coming from cereals, as Table 4 shows, though inflation in those steadily increased for the early part of 2013.

Meanwhile, as Table 5 shows, fuel inflation continues to be a major driver of double-digit overall inflation figures, though it is off the highs it occupied at the end of last year. Urban prices have generally increased more than rural prices, as Table 6 reveals. But the RBI's policy stance certainly has succeeded in choking off the manufacturing sector, as Table 7 shows; core inflation, once the main target of policy, is down to two per cent. (Click here for table)