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  • Conext (TH | IE): The Monetary Policy Committee decided to keep the policy repo rate unchanged at 6.50% as of April 5, 2024. This marks the seventh consecutive time rates have remained steady.
  • The MPC also decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth.
  • The RBI has indicated that headline inflation will moderate in the coming months, aided by a favourable base effect lasting until July 2024.

Key Highlights

  • Overall inflation has been somewhat controlled, dropping to 5.1% in January and February 2024.
  • Core inflation has also decreased steadily over nine months to its lowest level in the series.
  • The fuel component of the CPI stayed in deflation for six consecutive months, but food inflation pressures intensified in February.
  • For 2024-25, assuming a normal monsoon, CPI inflation is projected at 4.5%.
  • The central bank has retained GDP growth at 7% and retail inflation at 4.5 % for fiscal 2024-25.

Food Inflation is a concern

  • Food inflation has been volatile, reaching 7.8% in February 2024.
  • Sustained inflationary trends in nonperishable food categories, such as pulses and spices, raise concerns.
  • Factors driving food inflation change frequently.
  • The concern is to prevent spillover effects to the rest of the Consumer Price Index (CPI).

Challenges in Inflation control

  • Geopolitical tensions.
  • Volatility in international financial markets.
  • Geo-economic fragmentation.
  • Adverse climate shocks.

Measuring Food Inflation in India

Consumer Food Price Index (CFPI)

  • CFPI measures the change in retail prices of food products consumed by a defined population group in a given area, using a base year as a reference.
  • The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation (MOSPI) releases CFPI for three categories (rural, urban, and combined) separately on an all-India basis.
  • Like the Consumer Price Index (CPI), the CFPI is calculated monthly.
  • The base year presently used is 2012.

WPI Food Index

  • WPI food index is a new Food Price Index launched on 12 May 2017 as part of the revised WPI series with the base year 2011-12.
  • The WPI food index shows price changes in food items with price quotations from producers. On the other hand, the CPI Food Price Index uses price quotations from retailers.
  • The WPI Food index is compiled by taking the aggregate of WPI for “Food Products” under “Manufacture Products” and “Food Articles” under “Primary Article” using weighted arithmetic mean.
  • The WPI is historically the most commonly used price index for measuring inflation in India.

Global Food Price Index

  • Globally, the food price index is being released by the Food and Agriculture Organization of the United Nations.
  • The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities.
  • It consists of the average of five commodity group price indices (Cereal, Vegetable Oil, Dairy, Meat and Sugar).

Base Effect

  • It occurs when price levels in the current year are compared to those of the previous year. E.g,
    • If inflation was high in the previous year, part of the potential increase is already considered, resulting in relatively lower inflation rates for similar price increases in the current year.
    • Conversely, if inflation was low in the previous year, even a small rise in the price index will lead to a high current inflation rate.

To know more about Food Inflation in India, Visit > Deglobalisation of Food Inflation

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