Economic Survey 2022 : Prices and Inflation – UPSC GS3

Prices and Inflation:
  • The average headline Consumer Price Index (CPI) -Combined inflation moderated to 5.2% in 2021-22 (April-December) from 6.6% in the corresponding period of 2020-21.
  • The decline in retail inflation (CPI) was led by easing food inflation. Food inflation averaged at a low of 2.9% in 2021-22 (April to December) as against 9.1% in the corresponding period last year.
  • Effective supply-side management kept prices of most essential commodities under control during the year. Proactive measures were taken to contain the price rise in pulses and edible oils.
  • Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.
  • Wholesale inflation based on Wholesale Price Index (WPI) rose to 12.5% during 2021-22 (April to December). This has been attributed to:
    • Low base in the previous year,
    • Pick-up in economic activity,
    • Sharp increase in international prices of crude oil and other imported inputs, and
    • High freight costs.
  • Divergence between CPI-C and WPI Inflation: The divergence peaked to 9.6% points in May 2020. However in 2021 there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0% points in December 2021. This divergence can be explained by factors such as:
    • Variations due to base effect,
    • Difference in scope and coverage of the two indices,
    • Price collections,
    • Items covered,
    • Difference in commodity weights, and
    • WPI being more sensitive to cost-push inflation led by imported inputs.
  • With the gradual waning of base effect in WPI, the divergence in CPI-C and WPI is also expected to narrow down.

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