Inflation in India

Inflation rate in India was 4.83% as of April 2024, as per the Indian Ministry of Statistics and Programme Implementation. This represents a modest reduction from the previous figure of 5.69% for December 2023. CPI for the months of January, February and March 2024 are 5.10, 5.09 and 4.85 respectively. Inflation rates in India are usually quoted as changes in the Consumer Price Index (CPI), for all commodities.

Many developing countries use changes in the consumer price index (CPI) as their central measure of inflation. In India, CPI (combined) is declared as the new standard for measuring inflation (April 2014). CPI numbers are typically measured monthly, and with a significant lag, making them unsuitable for policy use. India uses changes in the CPI to measure its rate of inflation.

The WPI measures the price of a representative basket of wholesale goods. In India, this basket is composed of three groups: Primary Articles (22.62% of total weight), Fuel and Power (13.15%) and Manufactured Products (64.23%). Food Articles from the Primary Articles Group account for 15.26% of the total weight. The most important components of the Manufactured Products Group are, Food products (19.12%); Chemicals and Chemical products (12%); Basic Metals, Alloys and Metal Products (10.8%); Machinery and Machine Tools (8.9%); Textiles (7.3%) and Transport, Equipment and Parts (5.2%).

WPI numbers were typically measured weekly by the Ministry of Commerce and Industry. This makes it more timely than the lagging and infrequent CPI statistic. However, since 2009 it has been measured monthly instead of weekly.

Issues

The challenges in developing economy are many, especially when in context of the monetary policy with the Central Bank, the inflation and price stability phenomenon. There has been a universal argument these days when monetary policy is determined to be a key element in depicting and controlling inflation. The Central Bank works on the objective to control and have a stable price for commodities. A good environment of price stability happens to create saving mobilisation and a sustained economic growth. The former Governor of RBI C. Rangarajan points out that there is a long-term trade-off between output and inflation. He adds on that short-term trade-off happens to only introduce uncertainty about the price level in future. There is an agreement that the central banks have aimed to introduce the target of price stability while an argument supports it for what that means in practice.

Optimal inflation rate

It arises as the basic theme in deciding an adequate monetary policy. There are two debatable proportions for an effective inflation, whether it should be in the range of 1–3 per cent as the inflation rate that persists in the industrialized economy or should it be in the range of 6–7 per cent. While deciding on the elaborate inflation rate certain problems occur regarding its measurement. The measurement bias has often calculated an inflation rate that is comparatively more than actual. Secondly, there often arises a problem when the quality improvements in the product are in need to be captured out, hence it affects the price index. The consumer preference for a cheaper goods affects the consumption basket at costs, for the increased expenditure on the cheaper goods takes time for the increased weight and measuring inflation. The Boskin Commission has measured 1.1 per cent of the increased inflation in USA every annum. The commission points out for the developed countries comprehensive study on inflation to be fairly low.

Money supply and inflation

The Good Quantitative Easing by the central banks with the effect of an increased money supply in an economy often helps to increase or moderate inflationary targets. There is a puzzle formation between low-rate inflation and a high growth of money supply. When the current rate of inflation is low, a high worth of money supply warrants the tightening of liquidity and an increased interest rate for a moderate aggregate demand and the avoidance of any potential problems. Further, in case of a low output a tightened monetary policy would affect the production in a much more severe manner. The supply shocks have known to play a dominant role in the regard of monetary policy. The bumper harvest in 1998–99 with a buffer yield in wheat, sugarcane, and pulses had led to an early supply condition further driving their prices from what were they in the last year. The increased import competition since 1991 with the trade liberalisation in place have widely contributed to the reduced manufacturing competition with a cheaper agricultural raw materials and the fabric industry. These cost-saving-driven technologies have often helped to drive a low inflation rate. The normal growth cycles accompanied with the international price pressures has several times being characterized by domestic uncertainties.

Global trade

Inflation in India generally occurs as a consequence of global traded commodities and the several efforts made by the Reserve Bank of India (RBI) to weaken rupee against the dollar. This was done after the Pokhran Blasts in 1998. This has been regarded as the root cause of inflation crisis rather than the domestic inflation. According to some experts the policy of RBI to absorb all dollars coming into the Indian economy contributes to the appreciation of the rupee. When the U.S. dollar has shrieked by a margin of 30%, the RBI had made a massive injection of dollar in the economy make it highly liquid and this further triggered off inflation in non-traded goods. The RBI picture clearly portrays for subsidising exports with a weak dollar-exchange rate. All these account for a dangerous inflationary policies being followed by the central bank of the country. Further, on account of cheap products being imported in the country which are made on a high technological and capital intensive techniques happen to either increase the price of domestic raw materials in the global market or they are forced to sell at a cheaper price, hence fetching heavy losses.

Factors

There are several factors which help to determine the inflationary impact in the country and further help in making a comparative analysis of the policies for the same. The major determinant of the inflation in regard to the employment generation and growth is depicted by the Phillips curve.

Demand factors

It basically occurs in a situation when the aggregate demand in the economy has exceeded the aggregate supply. It could further be described as a situation where too much money chases just few goods. A country has a capacity of producing just 5,500 units of a commodity but the actual demand in the country is 7,000 units. Hence, as a result of which due to scarcity in supply the prices of the commodity rises. This has generally been seen in India in context with the agrarian society where due to droughts and floods or inadequate methods for the storage of grains leads to lesser or deteriorated output hence increasing the prices for the commodities as the demand remains the same.

Supply factors

The supply side inflation is a key ingredient for the rising inflation in India. The agricultural scarcity or the damage in transit creates a scarcity causing high inflationary pressures. Similarly, the high cost of labor eventually increases the production cost and leads to a high price for the commodity. The energies issues regarding the cost of production often increases the value of the final output produced. These supply driven factors have basically have a fiscal tool for regulation and moderation. Further, the global level impacts of price rise often impacts inflation from the supply side of the economy.

Consensus on the prime reason for the sticky and stubbornly high Consumer Price Index, that is retail inflation of India, is due to supply side constraints; and still where interest rate remains the only tool with the Reserve Bank of India. Higher inflation rate also constraints India's manufacturing environment.

Domestic factors

Developing economies like India have generally a lesser developed financial market which creates a weak bonding between the interest rates and the aggregate demand. This accounts for the real money gap that could be determined as the potential determinant for the price rise and inflation in India. There is a gap in India for both the output and the real money gap. The supply of money grows rapidly while the supply of goods takes due time which causes increased inflation. Similarly, hoarding has been a problem of major concern in India where onion prices have shot high. There are several other stances for the gold and silver commodities and their price hike.

External factors

The exchange rate determination is an important component for the inflationary pressures that arises in India. The liberal economic perspective in India affects the domestic markets. As the prices in United States rises it impacts India where the commodities are now imported at a higher price impacting the price rise. Hence, the nominal exchange rate and the import inflation are a measures that depict the competitiveness and challenges for the economy.

Value

The annual inflation rate in India was recorded at 6.95% in 2023. Historically, from 1960 until 2023, the annual inflation rate in India averaged 7.37% reaching an all-time high of 28.60% in 1974 and a record low of -7.63% in 1976.

The inflation rate for Primary Articles is currently at 9.8% (as of 2012). This breaks down into a rate 7.3% for Food, 9.6% for Non-Food Agriculturals, and 26.6% for Mining Products. The inflation rate for Fuel and Power is at 14.0%. Finally, the inflation rate for Manufactured Articles is currently at 7.3%.

Indices

17th century

Given below is a comparison of GDP Deflator, average consumer price inflation, cost (for filing tax returns) inflation, gold, silver and house inflation indices in India (collated from IMF, CBDT, RBI and multiple sources). GDP Deflator is a composite index of time series constructed independently by Angus Maddison and government departments (since 1950). Price index is useful in gauging income and profit of sellers, cost index is useful in gauging expenditure and loss of buyers while the gold index helps measure wealth. The gold index is in vogue for three centuries.

Year	GDP Deflator (index 2011 = 100)	Cost Index (CBDT)	Gold Index (RBI)	Silver Index (RBI)	House Index (RBI)
1687	0.100
1688	0.100
1689	0.100
1690	0.100
1691	0.100
1692	0.100
1693	0.099
1694	0.099
1695	0.100
1696	0.110
1697	0.112
1698	0.111
1699	0.107

18th century

Year	GDP Deflator (index 2011 = 100)	Cost Index (CBDT)	Gold Index (RBI)	Silver Index (RBI)	House Index (RBI)
1700	0.106
1701	0.108
1702	0.111
1703	0.109
1704	0.109
1705	0.108
1706	0.110
1707	0.111
1708	0.111
1709	0.110
1710	0.109
1711	0.110
1712	0.110
1713	0.109
1714	0.109
1715	0.108
1716	0.108
1717	0.106
1718	0.107
1719	0.106
1720	0.107
1721	0.106
1722	0.106
1723	0.107
1724	0.106
1725	0.106
1726	0.106
1727	0.107
1728	0.107
1729	0.106
1730	0.105
1731	0.105
1732	0.106
1733	0.107
1734	0.108
1735	0.109
1736	0.107
1737	0.106
1738	0.105
1739	0.105
1740	0.105
1741	0.105
1742	0.105
1743	0.105
1744	0.106
1745	0.106
1746	0.106
1747	0.108
1748	0.106
1749	0.104
1750	0.102
1751	0.101
1752	0.102
1753	0.102
1754	0.102
1755	0.103
1756	0.105
1757	0.104
1758	0.105
1759	0.101
1760	0.100
1761	0.104
1762	0.109
1763	0.108
1764	0.103
1765	0.104
1766	0.105
1767	0.106
1768	0.106
1769	0.106
1770	0.105
1771	0.105
1772	0.104
1773	0.103
1774	0.102
1775	0.103
1776	0.102
1777	0.101
1778	0.102
1779	0.103
1780	0.103
1781	0.103
1782	0.101
1783	0.102
1784	0.103
1785	0.104
1786	0.104
1787	0.104
1788	0.102
1789	0.103
1790	0.105
1791	0.105
1792	0.106
1793	0.105
1794	0.107
1795	0.109
1796	0.109
1797	0.108
1798	0.109
1799	0.110

19th century

Year	GDP Deflator (index 2011 = 100)	Cost Index (CBDT)	Gold Index (RBI)	Silver Index (RBI)	House Index (RBI)
1800	0.110
1801	0.109
1802	0.109
1803	0.110
1804	0.111
1805	0.114
1806	0.113
1807	0.114
1808	0.120
1809	0.121
1810	0.121
1811	0.133
1812	0.146
1813	0.155
1814	0.129
1815	0.126
1816	0.110
1817	0.108
1818	0.113
1819	0.110
1820	0.110
1821	0.112
1822	0.111
1823	0.111
1824	0.110
1825	0.110
1826	0.110
1827	0.110
1828	0.110
1829	0.110
1830	0.111
1831	0.110
1832	0.110
1833	0.111
1834	0.110
1835	0.111
1836	0.110
1837	0.111
1838	0.111
1839	0.110
1840	0.109
1841	0.110
1842	0.111
1843	0.111
1844	0.111
1845	0.111
1846	0.111
1847	0.111
1848	0.111
1849	0.110
1850	0.110
1851	0.108
1852	0.109
1853	0.107
1854	0.107
1855	0.108
1856	0.108
1857	0.107
1858	0.108
1859	0.106
1860	0.107
1861	0.108
1862	0.107
1863	0.108
1864	0.108
1865	0.108
1866	0.108
1867	0.109
1868	0.109
1869	0.109
1870	0.109	-	0.090	-	-
1871	0.106	-	0.090	-	-
1872	0.114	-	0.091	-	-
1873	0.121	-	0.092	-	-
1874	0.117	-	0.094	-	-
1875	0.112	-	0.096	-	-
1876	0.113	-	0.103	-	-
1877	0.115	-	0.100	-	-
1878	0.112	-	0.104	-	-
1879	0.124	-	0.106	-	-
1880	0.137	-	0.105	-	-
1881	0.153	-	0.106	-	-
1882	0.159	-	0.105	-	-
1883	0.160	-	0.108	-	-
1884	0.152	-	0.108	-	-
1885	0.144	-	0.112	-	-
1886	0.156
1887	0.161
1888	0.168
1889	0.172
1890	0.178	-	0.114	-	-
1891	0.201
1892	0.196
1893	0.180
1894	0.162
1895	0.183
1896	0.196
1897	0.172
1898	0.192
1899	0.224

20th century

Year	GDP Deflator (index 2011 = 100)	Cost Index (CBDT)	Gold Index (RBI)	Silver Index (RBI)	House Index (RBI)
1900	0.228
1901	0.242
1902	0.242
1903	0.257
1904	0.254
1905	0.291
1906	0.306
1907	0.354
1908	0.311
1909	0.293
1910	0.304
1911	0.314
1912	0.342
1913	0.365
1914	0.320
1915	0.347
1916	0.430
1917	0.525
1918	0.760
1919	0.688	-	0.113	-	-
1920	0.838
1921	0.650
1922	0.624	-	0.098	-	-
1923	0.755	-	0.091	-	-
1924	0.735	-	0.089	-	-
1925	0.758	-	0.078	-	-
1926	0.792	-	0.078	-	-
1927	0.783	-	0.078	-	-
1928	0.795	-	0.077	-	-
1929	0.812	-	0.078	-	-
1930	0.712	-	0.078	-	-
1931	0.602	-	0.084	-	-
1932	0.458	-	0.107	-	-
1933	0.439	-	0.105	-	-
1934	0.510	-	0.126	-	-
1935	0.573	-	0.130	-	-
1936	0.631	-	0.128	-	-
1937	0.704	-	0.128	-	-
1938	0.661	-	0.130	-	-
1939	0.692	-	0.143	-	-
1940	0.740	-	0.159	-	-
1941	0.912	-	0.159	-	-
1942	1.177	-	0.159	-	-
1943	1.384	-	0.159	-	-
1944	1.544	-	0.159	-	-
1945	1.596	-	0.159	-	-
1946	1.676	-	0.159	-	-
1947	1.829	-	0.159	-	-
1948	1.988	-	0.158	-	-
1949	1.902	-	0.173	-	-
1950	2.057	-	0.229	-	-
1951	2.123	-	0.229	-	-
1952	2.031	-	0.228	-	-
1953	2.083	-	0.227	-	-
1954	1.879	-	0.228	-	-
1955	1.853	-	0.229	-	-
1956	2.091	-	0.228	-	-
1957	2.162	-	0.228	-	-
1958	2.245	-	0.227	-	-
1959	2.304	-	0.227	-	-
1960	2.392	-	0.228	-	-
1961	2.443	-	0.228	-	-
1962	2.551	-	0.228	-	-
1963	2.764	-	0.228	-	-
1964	3.000	-	0.228	-	-
1965	3.250	-	0.228	-	-
1966	3.681	-	0.288	-	-
1967	3.998	-	0.360	-	-
1968	4.095	-	0.404	-	-
1969	4.232	-	0.429	-	-
1970	4.298	-	0.376	1.383	-
1971	4.527	-	0.423	1.211	-
1972	5.017	-	0.604	1.529	-
1973	5.912	-	1.106	2.698	-
1974	6.897	-	1.752	3.902	-
1975	6.784	-	1.850	4.066	-
1976	7.189	-	1.535	4.305	-
1977	7.595	-	1.776	4.352	-
1978	7.782	-	2.165	5.197	-
1979	9.006	-	3.427	15.106	-
1980	10.042	-	6.600	13.401	-
1981	11.129	10.000	5.449	8.724	-
1982	12.031	10.900	4.867	9.431	-
1983	13.060	11.600	5.848	11.722	-
1984	14.094	12.500	5.590	9.367	-
1985	15.108	13.300	5.349	7.987	-
1986	16.134	14.000	6.337	7.400	-
1987	17.639	15.000	7.916	10.055	-
1988	19.091	16.100	8.320	9.905	-
1989	20.702	17.200	8.469	9.487	-
1990	22.911	18.200	9.194	8.597	-
1991	26.061	19.900	11.267	10.899	-
1992	28.398	22.300	13.267	12.499	-
1993	31.198	24.400	15.422	15.803	-
1994	34.312	25.900	16.522	17.291	-
1995	37.422	28.100	17.068	19.364	-
1996	40.256	30.500	18.869	19.208	-
1997	42.863	33.100	16.510	20.513	-
1998	46.297	35.100	16.676	23.813	-
1999	47.717	38.900	16.487	24.288	-

21st century

Year	GDP Deflator (index 2011 = 100)	Cost Index (CBDT)	Gold Index (RBI)	Silver Index (RBI)	House Index (RBI)
2000	49.457	40.600	17.214	23.700	-
2001	51.048	42.600	17.555	22.362	-
2002	52.944	44.700	20.676	24.228	-
2003	54.992	46.300	23.211	26.608	-
2004	58.141	48.000	25.374	32.555	-
2005	61.409	49.700	26.800	38.057	-
2006	66.568	51.900	37.399	60.446	-
2007	71.191	55.100	39.311	62.460	-
2008	77.736	58.200	51.790	66.864	-
2009	83.209	63.200	64.353	79.933	-
2010	91.968	71.100	76.495	116.836	53.300
2011	100.000	78.500	100.000	181.068	67.050
2012	107.934	85.200	123.907	177.763	80.400
2013	114.612	93.900	113.067	138.810	90.250
2014	118.430	102.400	105.716	118.703	106.050
2015	121.130	108.100	101.825	106.972	109.550
2016	125.052	112.500	114.900	127.866	121.000
2017	130.016	115.900	112.055	116.539	129.100
2018	135.066	119.280	118.634	115.134	133.350
2019	138.295	-	133.678	-	-
2020	146.041	-	179.1182	-	-
2021	160.062	-	181.712	-	-

External links

• India Inflation Rate Tables, Charts, Calculators CPI-IW based inflation rate tables, charts, calculators, comparison with other countries and periods.