*****Walking and talking down retail inflation – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/walking-and-talking-down-retail-inflation/articleshow/92860263.cms

Synopsis

Principally, though, policy is targeting food and fuel price movements, which are excluded to arrive at core inflation – a better yardstick for overall price pressures in the economy. Inflation based on the wholesale price index (WPI), in which manufacturing has nearly two-thirds weight, has not yet peaked.

Nirmala Sitharaman’s assurance of an adequate supply response on individual price spikes till inflation begins to ease should help anchor inflationary expectations. Her comments follow those of Shaktikanta Das that inflation is expected to come off protracted high levels from October, lessening the need for aggressive interest rate hikes that would involve a bigger sacrifice of growth. The National Statistical Office (NSO) this week estimated inflation based on the consumer price index (CPI) eased to 7.01% in June from 7.04% in the previous month and an eight-year peak of 7.79% in May. The retail inflation trajectory in the first quarter of the fiscal year is, thus, lower than RBI‘s latest forecast of 7.5%.

This has been accomplished through a combination of monetary tightening and fiscal responses to food and fuel inflation. RBI's policy normalisation has not been severe in part because GoI has stepped in with tax giveaways on fuel and an enlarged food subsidy programme. Consumers have been protected by taxing exports of oil refiners and windfall crude oil profits, and by denying farmers opportunity to sell wheat abroad as global prices peaked. These policy choices were taken in the backdrop of record capital outflows that are pressing down the rupee and raising imported energy inflation. India has also shifted a part of its crude oil purchases to local currency, which should take some pressure off the rupee.

Principally, though, policy is targeting food and fuel price movements, which are excluded to arrive at core inflation - a better yardstick for overall price pressures in the economy. Inflation based on the wholesale price index (WPI), in which manufacturing has nearly two-thirds weight, has not yet peaked. Wholesale inflation in May rose to 15.88% from 15.08% in April. This is the highest level in three decades. Anchoring inflation expectations, what this data set represents is as important as talking down the policy-setting retail inflation rate.

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