Inflation in India

 


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Inflation based on wholesale prices during the period January 1998 - January 1999 was 4.6 percent, one of the lowest in the world.

 


The 1990s is widely described in general as a price stability era all over the globe. During the early part of the decade developed and developing countries alike experienced "a distinct ebbing of inflation", so observes India's central banking authorities, Reserve Bank of India (RBI). Inflation in India, barring some external factors like bouts of increase in international oil price and natural disasters like drought or flood, is showing an ebbing trend. The first half of India's fiscal 2002-03 (beginning April 1, 2002) witnessed uptrend in inflation largely due to increase in oil prices twice during the period and adverse impact of drought on agri- products leading to increase in prices – particularly of oilseeds and edible oils. The efficient handling of supply management helped inflation eased in the second half of the fiscal. As a whole at the end of the fiscal 2002-03 inflation was up 3.3 percentage points. In the light of overall variation in wholesale price inflation, the inflation in fiscal 2002-03 was dominated by non-food items unlike preceding years, according to a RBI report.

One of the major import contents of India's inflation in fiscal 2002-03 were edible oils and oil cakes that recorded highest price increase. Acute shortfall in production of the commodity led to about half the domestic demand met by imports. The RBI report also states that the underlying inflation (measured by average WPI) during this fiscal was dominated by manufactured product groups. Within manufactures again, edible oils, oil cakes and manmade fibres were largely responsible uppish trend in inflation. Inflation measured by average consumer price index for industrial workers (CPI-IW) however eased in fiscal 2002-03.

India: WPI Inflation by Component (Base: 1993-94=100)

(Per Cent)

Group/Item Weight Weight contribution to overall inflation in 2002-03 Annual Point-to-Point Inflation
2002-03 2001-02 2000-01
ALL COMMODITIES
100.0
100.0
6.5
1.6
4.9
I. Primary Articles
22.0
21.6
6.1
3.9
-0.4
Food Articles
15.4
2.2
0.8
5.2
-2.8
i) Cereals
4.4
2.9
4.0
0.8
-5.5
ii) Fruits & vegetables
2.9
-0.6
-1.2
14.4
-2.9
Non-food articles
6.1
19.3
22.1
0.6
6.0
i) Fibres
1.5
4.9
26.5
-17.9
7.4
ii) Oil Seeds
2.7
10.6
30.0
6.8
2.8
iii) Sugarcane
1.3
2.8
11.5
6.2
10.5
Manufactured Products
63.7
44.3
5.1
0.0
3.8
Food Products
11.5
14.0
8.7
0.3
-3.1
i) Sugar
3.6
-7.0
-15.0
-3.8
-0.9
ii) Edible Oils
2.7
8.5
27.4
12.5
-4.8
iii) Oil Cakes
1.4
8.8
40.3
15.0
0.4
Chemical & Chemical Products
11.9
8.2
4.2
2.5
4.0
of which: Fertilisers
3.7
1.2
2.1
3.6
3.4
Cement
1.7
0.3
1.1
-4.7
20.3
Basic Metals, Alloys and Metal Products
8.3
7.3
6.6
-0.9
3.2
of which: Iron and Steel
3.6
4.4
9.2
0.0
1.3
Machinery & Machinery Tools
8.4
0.5
0.5
2.0
9.5
Transport equipments and parts
4.3
-0.6
-0.9
1.3
5.8
Fuel Group
14.2
33.9
10.8
3.9
15.0
Mineral Oils
7.0
29.7
18.4
1.2
17.0
Electricity
5.5
4.2
3.4
9.2
11.5
Food Items (Composite)
26.9
16.2
3.9
3.3
-2.9
Agro-based Manufactured products#
28.3
27.4
7.4
-1.4
1.3
Non-food items (WPI excluding Food)
73.1
83.8
7.5
1.0
8.0
WPI excluding Food Items & Mineral Oils
66.1
54.2
5.6
1.0
6.7
Average WPI Inflation
3.4
3.6
7.2
GDP deflator
2.3
3.4
4.3
Services in CPI-IW@
16.4
21.5*
5.3
4.9
5.6
Housing in CPI-IW
8.7
13.2*
5.4
12.9
6.4
# Includes manufactured food products, beverages, tobacco and tobacco products, textiles, wood and wood products, paper and paper products, leather products and rubber and plastic products.
@ Miscellaneous Group in the Consumer Price Index for Industrial Workers (CPI-IW).
* Weighted contribution to CPI-IW Inflation in 2002-03.
SOURCE: RESERVE BANK OF INDIA

To attain exchange rate stability and smoother and higher trade with country's major trade partners in developed countries in particular, it is imperative for India to be around the inflation rate ruling in its trade partner-countries. Compared with early 1990s, inflation in India has ebbed to a marked extent and ruling in the range of 4.5-5..5 percent compared with double digit inflation in some early years of 1990s.

Inflation rates based on Consumer Price Index
(1995-2004)

Developed economies
 
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
USA
2.8
2.9
2.3
1.5
2.2
3.4
2.8
1.6
2.3
2.3
Japan
-0.1
0
1.7
0.6
-0.3
-0.9
-0.7
-0.9
-0.7
-0.6
Germany
1.7
1.2
1.5
0.6
0.7
2.1
2.4
1.3
1.0
0.7
France
1.8
2.1
1.3
0.7
0.6
1.8
1.8
1.9
2.0
1.6
Italy
5.2
4.1
1.9
2.0
1.7
2.6
2.7
2.6
2.4
1.6
Britain
2.8
3.0
2.8
2.7
2.3
2.1
2.1
2.2
2.8
2.7
Canada
1.9
1.6
1.6
1.0
1.8
2.7
2.5
2.0
3.1
2.1
European Union
2.9
2.5
1.8
1.9
1.4
2.3
2.5
2.3
2.2
1.8
Developing economies in Asia
India
10.1
9.2
7.2
13.1
4.7
4.0
3.8
4.3
4.1
5.5
China
17.1
8.3
2.8
-0.8
-1.4
0.4
0.7
0.8
0.2
1.5
Indonesia
9.4
7.9
6.2
58.0
20.7
3.8
11.5
11.9
9.0
8.4
Malaysia
3.5
3.5
2.6
5.1
2.8
1.6
1.4
1.8
2.5
2.5
Pakistan
12.3
10.4
11.4
6.2
4.1
4.4
3.1
3.1
3.9
4.0
Thailand
5.8
5.9
5.6
8.1
0.3
1.6
1.7
0.61
1.7
0.9
Source: IMF's World Economic Outlook, April 2003

India: Average inflation rates of manufactured products

Year

All commodities

Manufactured products

Point-to-point Average Point-to-point Average
1990-91
12.1
10.3
8.9
8.4
1991-92
13.6
13.7
12.6
11.3
1992-93
7.0
10.0
7.9
10.9
1993-94
10.8
8.3
9.9
7.8
1994-95*
10.4
10.9
10.7
10.5
1995-96*
5.0
7.8
5.0
9.1
1996-97*
6.9
6.4
4.9
4.1
1997-98
5.3
4.8
4.0
4.1
1998-99*
4.8
6.9
3.7
4.5
1999-2000
6.0
3.3
2.4
2.7
2000-01
4.9
7.2
3.8
3.3
#  Figures based on Wholesale Price Index calculated by RBI with base 1981-82= 100
* Figures from 1994-95 onwards are based on the new WPI series with 1993-94= 100

Updated on March 30, 2004


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