Inflation in India Jumps to 6.95% in Mar 2022 – Impact & Data Analysis

15 April 2022
India Trade Data

Retail inflation in India has increased to 6.95% in Mar 2022 as compared to the previous month while wholesale inflation rose to 13.39%. How India is tackling inflation and what are the factors involved in rising inflation in India?   


Inflation in India


Retail inflation has increased to a seven-month high of 6.1% in January 2022, 6.07% in February, and 6.95% in March. The rise was mainly on account of high food inflation, which jumped to a 14-month high of 5.43%, along with an unfavourable base. Inflation at the wholesale level in January softened to 12.96% from 13.56% a month ago but marked the tenth consecutive month of being in double digits. WPI increased in February and March months.


According to the Reserve Bank of India (RBI), there are risks of retail inflation becoming more generalized. There are already signs of inflation turning structural in non-food segments like transport, health, and clothing. High global inflation and rising crude oil prices will exert further pressure. The RBI forecasted that CPI inflation will average 5.7% in the first quarter of 2022.

Month

WPI (Wholesale Price Index)

CPI (Consumer Price Index)

June 2021

12.1%

6.26%

July 2021

11.6%

5.59%

August 2021

11.64%

5.3%

September 2021

11.8%

4.35%

October 2021

13.83%

4.48%

November 2021

14.87%

4.91%

December 2021

13.56%

5.66%

January 2022

12.96%

6.01%

February 2022

13.11%

6.07%

March 2022

13.39%

6.95%

 


The rise in inflation in January 2022 came about despite the general index of the CPI falling by 0.3% on a month-on-month basis, indicating the presence of an unfavourable base. However, the presence of an unfavourable base effect meant that despite the Consumer Food Price Index falling by 1.3% in January 2022 from December 2021, food inflation shot up to 5.43% from 4.05%.


Category

Jan 2022 Inflation

Change in Index, Jan 2022 vs Dec 2021

CPI

6.01%

-0.30%

Food Index

5.43%

-1.30%

Cereals

3.39%

0.50%

Meat, Fish

5.47%

-0.10%

Oils, Fats

18.70%

-1.50%

Vegetables

5.19%

-7.40%

Pulses

3.02%

-0.30%

Clothing, Footwear

8.84%

1.00%

Housing

3.52%

0.70%

Fuel

9.32%

0.10%

Miscellaneous

6.55%

0.40%

 


India reduces import duty on lentils and crude palm oil to tame food inflation


In an effort to tame food inflation, the Indian government has reduced import duty on lentils and crude palm oil. Import duty on lentils to nil for Australia and Canada origins and cut it to 22% from 30%, for those originating in the United States. Australia has the highest share of India’s lentil imports. Also, the cess on crude palm oil has been reduced to 5% from 7.5%.


According to industry experts, the current ratio of 50:50 of crude and refined palm oil imports respectively is expected to change in favour of crude palm oil. The increase in duty difference between crude and refined palm oil will incentivize local refining. They expect the imports to be now in an 80:20 ratio of crude and refined palm oil respectively. 


India’s imports of lentils increased in the second half of 2021, and the value of palm oil imports also rose in Q2, Q3, and Q4. In Jan 2022, India imported lentils worth US$ 24 million and crude palm oil worth US$ 1,160 million. Here is an in-depth analysis of the Indian import market of lentils, and palm oil reported from 2021-Q1 to 2022-Q1 (Jan Data).

Quarter

Value US$ Million (Lentils)

Value US$ Million (Palm Oil)

2021-Q1

52

2,905

2021-Q2

34

3,540

2021-Q3

221

3,784

2021-Q4

266

3,518

2022-Q1 (Till Feb Data)

34

1,160

 


Prices for cooking oils are also on the rise after declining slightly in November 2021. Mustard oil prices have increased to their earlier peak level of Rs 175/kg wholesale. The decision to reduce the duty on imported palm oil is expected to increase domestic refining by 60% as the duty difference between crude palm oil and refined palm oil has been increased to 8.25% from 5.5%.


The domestic prices of lentils have been ruling at Rs 70-73/kg as against the minimum support price of Rs 64/kg. However, as the harvest of a good rabi crop of lentils has started this month, traders are surprised about the timing of duty reduction.


Global crude oil prices – what does it mean for India


Global crude oil prices stood at a record high of $116 a barrel due to the Russia-Ukraine war.  The invasion triggered sanctions from the US and Europe and disrupted energy exports from the world’s third-largest oil producer. Now global prices of crude oil have dropped to $95 a barrel as fears of Russian supply disruptions were temporarily put on the back burner by the coordinated inventory release by several countries and by extension of the Covid-19 lockdown in China.


Other reasons for rising oil prices include – more supply constraints like drone attacks on oil facilities in the UAE, a major oil producer, and an outage on a major oil pipeline linking Saudi Arabia and Turkey.


What does this mean for India? After announcing elections of 5 states – Uttar Pradesh, Punjab, Goa, Uttarakhand, and Manipur, petrol and diesel prices were hiked by Rs10 in 16 days. Today, the price of petrol in Delhi and many other states has been above Rs 100 per litre. The rise in fuel prices will also have a direct impact on inflation as transportation cost increases the prices across all daily needs.


Crude oil imports into India have constantly risen in all quarters of 2021. India’s crude oil imports were valued at US$ 24,070 million in Q1 of 2021, which increased to US$ 32,327 million in the fourth quarter. India imported crude oil worth US$ 11,621 million in January 2022. Below given chart shows the dollar amount of India’s imports of crude oil reported from 2021-Q1 to 2022-Q1 (till Feb).

Quarter

Value US$ Million

2021-Q1

24,070

2021-Q2

25,276

2021-Q3

28,292

2021-Q4

32,327

2022-Q1 (Till Feb)

25,929

 


The U.S. inflation reaches a 40-year high – impact on India


Consumer prices in the United States have increased by 7.5% over the past year. This inflation rate is the highest recorded in 40 years in the country. Supply chain headaches, shortage of goods and services, and the rising cost of labour have contributed to the inflation on the supply side of the equation.


What does it mean for India? As the cost of goods increases in the United States, the prices of these goods when they are imported by India are also going to increase. Commodities like pulses, oils, and most importantly fuel, are affected by the increase in global inflation. For the government, the rising price of energy remains a worry as India is a net importer and has to pay huge bills for the import of crude oil. 


In today’s modern world, the rise in inflation rates results from various factors including linkage of global economies, country’s local market scenarios, natural calamities, diplomatic tensions, and so on, as we see in the case of India. The U.S. inflation, rise in global crude oil prices, and Russia-Ukraine tensions are some of the important reasons that inflation rates in India have jumped.

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