Base boost: On inflation and the consumer

Context:
  • The decelerating trend in headline inflation continued for the fourth consecutive month this year, which supported the Reserve Bank of India’s decision to pause monetary tightening and assess the impact of previous interest rate increases.
The data:
  • On a month-on-month basis: the provisional Consumer Price Index (CPI) indicated a 0.51% increase in prices in May, maintaining the same pace as six-month high sequential inflation reading.
  • On year-on-year price gains: The slowdown in year-on-year price gains in May was largely attributed to inflation in food items, which decreased by 93 basis points to 2.91%.
  • The year-on-year moderation in inflation: The moderation of inflation, particularly in the food and beverages group, which contributes to 46% of the CPI.
Product-wise contributors:
  • Major products: Oils and fats played a significant role in easing food prices, experiencing a 16% deflation.
  • Cereals inflation dropped by over 100 basis points from April’s figure, reaching 12.7%.
  • For Vegetable prices, although deflated by 8.2% compared to the previous year, saw a sequential inflation of 3.35%.
Government Interventions:
  • Limits on stocks: The government-imposed limits on stock holding of urad and tur until October 31st.
  • Increase in Consumption: The perceived current inflation to be running at 8.8% which shows the household consumption is increasing.
  • Maintain Purchasing power: Policymakers face the challenge of convincing consumers that inflation will be controlled to prevent erosion of their purchasing power and savings.
Main Question: Discuss the impacts of retail inflation rate on purchasing power of consumers. Also suggest measures to tackle the same and the mention how the steps taken by Reserve Bank of India contribute to maintain the balance.
Syllabus Mapping:
  • Subject: Economy (GS-III)
    • Sub-topic: Monetary Policy and Planning
  • Introduce by mentioning the present scenario in the country regarding Inflation.
  • Discuss the effects and relation between inflation and consumer responses.
  • Also highlight the need for RBI interventions
  • Use data for supporting your answer
  • Suggest monetary policy measures and interest rates hikes for balancing out the situation.

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