The final month of 2022 capped in a seemingly gracious way a year marked by high inflation headlines. The average price increase faced by consumers in December slipped 5.7%, the lowest since November 2021. Data released on Monday shows that wholesale inflation also fell on a 22-month basis from 5.88% in November -low point of 4.95% has fallen. That December 2021 saw a steep 14.2% rise in wholesale prices exaggerated the slowdown effect. However, this was the seventh straight month that wholesale inflation has weakened since it hit an all-time high of 16.6% in May 2022, and the fourth straight month that retail inflation has fallen from 7.4% in September 2022 . In November and December Retail inflation remained below the central bank’s 6% threshold and wholesale prices rose at a slower pace than consumer prices, suggesting that pressure on producers to pass on higher input costs may be easing. The government preparing for a pre-election budget, the Reserve Bank of India (RBI) forecasting inflation from 6.1% in October-December 2022 to average 5.9% in the current quarter, and consumers would hope so too is a harbinger of lower prices this year.
However, those two months of milder inflation offer no convincing consolation on that front, simply because they have been disproportionately impacted by what some economists have called a “idiosyncratic” element – “vegetable prices”. From around 8% inflation in October, vegetable prices fell by 8% and 15% respectively in November and December as onions, tomatoes and potatoes became cheaper. This dragged down food inflation but may not have reduced overall household food spending significantly. Inflation accelerated for the sixth straight month in the largest food item – grains (13.8%, wheat prices up 22%). Legumes, milk, eggs, meat and fish, and spices also showed an upward trend, although non-food items and services show persistent price increases, be it clothing, shoes, personal care, household goods, or health and education. To keep volatile vegetable prices out, retail inflation was 7% in November and rocketed to 7.2% in December, belying the headline trend. Core inflation, which measures price rises net of food and energy, also rose and warranted attention, reiterated by RBI Governor Shakktanta Das amid mounting clamor for a halt to rate hikes. As the Chinese economy restarts from a strict zero-COVID policy, global commodity and oil prices may well firm again. It is still too early to lose sight of the inflation problem, which continues to weigh on rural demand in particular and thwarts long-awaited private investment plans.
