Statsguru: Energy to food prices, 6 charts explain India's inflation woes

In terms of food prices, India seems to be doing much better than the Western economies, owing to it being less dependent on imports

Data released by the government last week showed that retail inflation had come below 6 per cent for the first time since December 2021. 

However, November’s consumer price inflation reading of 5.88 per cent was still higher than the 4 per cent target. India was not the only country to witness a softening of consumer prices, as inflation dipped in the US, the UK and the euro zone(chart 1).

Wholesale prices or producer prices have also fallen across the world and India had lower wholesale inflation compared to the Western world (chart 2). But on the core inflation front, India seems to be on a par with the rest of the countries.

Analysis indicates that India’s core inflation has averaged 6.1 per cent for October and November. It was higher in the UK at 6.3 per cent, but core inflation in the United States was at 6 per cent in November (chart 3). In terms of food prices, India seems to be doing much better than the Western economies, given that the country is less dependent on food imports. 

While the rate of food price inflation in Western countries was still running in double digits, India’s food inflation was lowest in the last 11 months at 5.1 per cent (chart 4). Energy inflation in the country, though in double digits, was still considerably lower than the UK and the euro zone, which are primarily dependent on Russian gas.

Energy prices in India rose 10.6 per cent annually in November compared to 13.1 per cent in the US. They rose 54.9 per cent and 41.5 per cent in the UK and the euro zone, respectively (chart 5). It is unsurprising then that the US Federal Reserve and Bank of England have instituted larger rate hikes of 50 basis points each, compared to India’s 35-basis-points increase in the December meeting. 

The hawkish stance from the Fed indicates that the turnaround of the rate cycle is far off, especially as inflation in the country remains 5 percentage points above the 2 per cent target. It would be difficult for the RBI to take the foot off the pedal in its February meeting, given that the difference in rate hikes between the US and India has increased (chart 6).