Context:
- India’s retail inflation (CPI) rose marginally to 0.71% in November from 0.25% in October, as per MoSPI data.
- Despite the uptick, food prices remained in deflation for the sixth consecutive month, underscoring weak price pressures in essential commodities.
- The trend has implications for monetary policy stance, growth outlook, and household consumption.
Key Highlights:
Inflation Trends (November)
- Headline CPI inflation: 0.71% (up from 0.25% in October).
- Food inflation: –3.91%, continuing deflation for the sixth month.
- Gold and silver inflation: Reached record highs of 58.32% and 65.52%, respectively.
- Core inflation: Held steady at 4.4%, partly due to precious metals prices.
Drivers of Inflation Movement
- Unfavourable base effect contributed significantly to the rise in headline inflation.
- Vegetables and pulses remained in deflation, driving overall food deflation.
- Cereal inflation fell to a 50-month low, indicating easing supply-side pressures.
- On a month-on-month basis, vegetables and pulses showed a slight price increase, while egg prices recorded the sharpest rise.
Monetary Policy Context
- Inflation remains below RBI’s medium-term target of 4% for the tenth consecutive month.
- Continues to stay within the 2–6% flexible inflation targeting band.
- The Monetary Policy Committee (MPC) had earlier cut the repo rate by 25 bps to 5.25%.
- Economists expect another possible rate cut in early February, given subdued inflation and moderating GDP growth.
Relevant Prelims Points:
- Issue: Persistently low inflation with prolonged food deflation.
- Causes: Base effect, supply glut in food items, easing cereal prices.
- Government/RBI Actions: Repo rate cut to stimulate growth.
- Benefits: Lower cost of living, policy space for rate cuts.
- Challenges: Weak demand signals, rural income stress.
- Impact: Supports accommodative monetary policy stance.
Relevant Mains Points:
- Conceptual Clarity:
- Inflation vs Deflation: Inflation reflects rising prices; deflation indicates sustained price decline.
- Repo Rate: Key policy rate influencing liquidity and credit growth.
- MPC: Statutory body to maintain price stability while supporting growth.
- Economic Implications:
- Prolonged food deflation may dampen farm incomes.
- Elevated precious metals inflation distorts core inflation trends.
- Way Forward:
- Balance growth stimulus with price stability.
- Monitor food price recovery and demand revival.
- Use calibrated monetary easing alongside fiscal support for consumption.
UPSC Relevance (GS-wise):
- GS 3: Indian Economy, Inflation, Monetary Policy
- Prelims: CPI, Deflation, Repo Rate, MPC