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Explained: What’s causing high inflation and where?

West Bengal, Madhya Pradesh and Telangana are the worst hit by inflation

Written by Udit Misra | New Delhi |
Updated: May 13, 2022 12:33:37 pm
Among urban areas, consumers in Telangana, Gujarat and Maharashtra faced the highest inflation. (PTI)

India’s retail inflation rose by 7.79 per cent in April, according to the latest data released by the Ministry of Statistics and Programme Implementation. Inflation in food items rose by even higher — 8.38 per cent in April — according to the MoSPI’s Consumer Food Price Index (see Table 1 below).

However, the biggest jump was registered in fuel prices, which rose by almost 11 per cent in April. This is a direct impact of the higher crude oil prices being passed through to the consumers in the wake of the war in Ukraine.

Table 1: What is causing inflation: Composition of Consumer Price Index

Among the states, West Bengal, Madhya Pradesh and Telangana faced the highest levels of overall consumer inflation (see Table 2).

Disaggregated data about the rural and urban areas shows that in four states — West Bengal, Madhya Pradesh, Telangana and Haryana — rural consumers faced a retail inflation of more than 10 per cent.

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Among urban areas, consumers in Telangana, Gujarat and Maharashtra faced the highest inflation.

Table 2: Inflation rates in state/UTs

Retail inflation essentially refers to the rate at which the general price level went up in a particular month (April in the current instance) over what it was in the same month a year ago. The change is expressed as a percentage. Retail inflation also refers to the prices faced by consumers, and not the ones prevailing in the wholesale market.

The retail inflation level is the most important measure of inflation in India because it is this inflation rate that India’s central Bank, the RBI, targets to maintain price stability. According to the law, the RBI is supposed to keep overall retail inflation at the 4% level. However, the law allows RBI a leeway of two percentage points. In other words, in a particular month, retail inflation can vary between 2% and 6%.

However, since the start of 2022, retail inflation has been trending above the 6% mark and there is a good chance that it may stay above the 6% mark for the first 9 months of the year. If that happens, the RBI will have to explain the slippage to the Parliament.

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