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Economic survey suggests change in weighage of food items to gauge true picture of inflation

As per the survey, the present spike in client price-based retail inflation of food costs is especially a supply-side phenomenon.

The financial survey for 2020-21 has steered revision in the weightage of food items to gauge the true picture of inflation in the nation, and mentioned new sources of value information additionally want to be integrated in the wake of growing retail e-commerce transactions.

As per the survey, the present spike in client price-based retail inflation of food costs is especially a supply-side phenomenon.

The survey famous that the weights of all items in retail inflation are primarily based on the NSO family consumption expenditure survey of 2011-12, including the burden of food items in the index may need considerably decreased over the last decade since then.

“There is a need to capture the revised weight of food items in the index to correctly depict the true picture of inflation in the country. Further, in the context of increasing retail e-commerce transactions, it is important to include such new sources of price data for the construction of price indices,” as per the survey.

During 2020-21, retail and wholesale inflation noticed actions in the other instructions. While headline retail inflation noticed a rise in contrast to the earlier 12 months, WPI inflation remained benign.

Supply-side shocks particularly owing to COVID-19 pandemic affected the retail inflation with food articles contributing to the general rise in inflation, mentioned the Survey.

“The easing of supply-side restrictions, which saw inflation moderate in December 2020, are expected to continue this easing. Government interventions to augment the supply of commodities as well as to ensure the provision of essentials have likely softened the impact of the pandemic,” it mentioned.

Food inflation has already eased in December lowering general inflationary pressures.

“Going forward, as food inflation eases further, overall inflation is expected to moderate further. On the other hand, improving demand conditions are likely to keep WPI inflation in the positive territory with improving pricing power for manufacturers,” authorities mentioned in the survey.

The headline CPI inflation averaged 6.6 % in 2020-21 (April-December) and stood at 4.6 % in December 2020, primarily pushed by rise in food inflation, which has elevated from 6.7 % in 2019-20 to 9.1 % in 2020-21 (April-December), owing to construct up in vegetable costs.

Thali prices have elevated between June 2020 and November 2020, they witnessed a pointy fall in the month of December reflecting the autumn in the costs of many important food commodities, as per the survey.

Food inflation has been driving general client retail inflation due to the comparatively extra weight of food items in the index, it mentioned, including whereas food habits have undergone revisions over the last decade since 2011-12 (base 12 months of CPI), the bottom 12 months of CPI wants revision.

The Economic Survey 2020-21, said {that a} tight financial coverage may play a task to handle inflation when there may be extra demand, which fuels inflation. However, the present state of affairs presents a distinct picture.

“This can be easily assessed from the fact that arrivals in the market, for agricultural commodities like onion, tomato and potato that have witnessed spikes in recent times, have been much lower compared to the previous years.” Citing surveys by IIM, Ahmedabad and the Reserve Bank, the federal government mentioned the one 12 months forward inflation expectation for the retail inflation has risen through the present 12 months.

As per the enterprise inflation expectations survey of Indian Institute of Management (IIM) Ahmedabad, one 12 months forward inflation expectations for retail inflation barely rose from 4 % in February 2020, to 4.4 % in October 2020.

While, the inflation expectations survey of households performed by RBI additionally pointed to a slight rise in inflation expectations from 9.1 % in March 2020, to 9.7 % in November 2020, although it was decrease in contrast to September 2020.

In order to management inflation, the federal government has taken a number of steps to enhance availability of commodities equivalent to pulses, onion and potato and make them accessible to shoppers at reasonably priced costs, equivalent to banning export of onion for a quick interval, imposition of inventory limits, and easing import restrictions.

These measures have resulted in elevated imports of onion, tur dal and masur dal in the nation and resultant cooling of costs.

There are different measures together with the value stabilisation fund (PSF) scheme for controlling costs of pulses by creating buffers and signing treaties with different international locations to guarantee assured provides of some commodities amongst others.

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