Headline inflation based on CPI-C declined to 3.4 per cent in 2018-19; has continued declining trend for fifth straight financial year; below 4.0 per cent in the last two years

Food inflation based on Consumer Food Price Index (CFPI) declines over last five years, and remains below 2.0 per cent for the last two consecutive years

Rural Inflation (CPI) declined during FY 2018-19; many States witnessed fall in CPI Inflation during FY 2018-19

The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman tabled the Economic Survey 2018-19 in Parliament today. The Economic Survey states that the economy witnessed a gradual transition from a period of high and variable inflation to more stable and low level of inflation in the last five years.

The Survey notes, “Headline inflation based on the Consumer Price index – Combined (CPI-C) has been declining continuously for the last five years. Headline CPI inflation declined to 3.4 per cent in 2018-19 from 3.6 per cent in 2017-18, 4.5 per cent in 2016-17, 4.9 per cent 2015-16 and 5.9 per cent in 2014-15”. The Economic Survey further adds, “It stood at 2.9 per cent in April 2019 as compared to 4.6 per cent in April 2018. Food inflation based on Consumer Food Price Index (CFPI) declined to a low of 0.1 per cent during the financial year 2018-19”.

Referring to Inflation based on Wholesale Price Index (WPI), the survey states, “It remained moderate at 3.0 per cent in 2017-18 compared to 1.7 per cent in 2016-17, (-)3.7 per cent in 2015-16 and 1.2 per cent in 2014-15. During FY 2018-19, WPI inflation stood at 4.3 per cent”.

Current trends in Inflation

Referring to the current trends in Inflation, the Economic Survey states “The CPI-C inflation for the month of April 2019 stood at 2.9 per cent same as in March 2019 as compared to 4.6 per cent in April 2018”.  It further states that the decline in the inflation in the FY 2018-19 was mainly due to low food inflation which ranged between (-) 2.6 to 3.1 per cent.

According to the Economic Survey, Food Inflation in the country has been extremely benign.  It stood at 1.1 per cent in April 2019 compared to 0.3 per cent in March 2019 and 2.8 per cent in April, 2018.  Food inflation based on Consumer Food Price Index (CFPI) declined to 1.8 per cent in 2017-18 from 4.2 per cent in 2016-17, 4.9 per cent in 2015-16 and 6.4 per cent in 2014-15.  Average food inflation for the financial year 2018-19 declined to a low of 0.1 per cent.  “The food deflation in the second half of FY 2018-19 is mainly due to deflation in vegetables, fruits, pulses and products, sugar & confectionary and eggs, which together account for 13.1 per cent rate in overall CPI-C”, the Survey notes.

The Survey further states, “Food inflation based on Wholesale Price Index too declined over the last two financial years.  It was over 0.6 per cent in 2018-19. WPI food inflation was at 4.9 per cent in April, 2019 as compared to 3.9 per cent in March, 2019 and 0.8 per cent in April, 2018”.

Reduction in both Rural & Urban Inflation

According to the Economic Survey, the current phase of low inflation is also marked by reduction in both urban and rural inflation.  It states that the decline in rural inflation is steeper than that of urban inflation since July, 2018 resulting in decline in headline inflation. “Fall in rural inflation is due to moderation in food inflation, which has been negative for last six months (October 2018 to March, 2019)” the Survey adds.

Many State Witness Fall in CPI Inflation

The Survey notes that many States witnessed fall in CPI inflation during FY 2018-19 and Inflation in 23 States/ UTs was below 4 percent in FY 2018-19. It further states that as many as 16 States/UTs had inflation rate lower than All India average for FY 2018-19 with Daman & Diu having the lowest inflation followed by Himachal Pradesh and Andhra Pradesh.

Drivers of Inflation

According to the Economic Survey, at all India level, CPI-C inflation during FY 2018-19 was driven mainly by miscellaneous group followed by housing as well as fuel and light group. The Survey further states that the relative importance of services in shaping up headline inflation has increased as it has contributed more than its weight. 40 items of services account for 23.37 per cent weight in CPI-C.

Measures to Contain Inflation

Elaborating the measures taken by the Government to contain inflation, the Economic Survey states that controlling Inflation remains a key area of policy focus. The Government has taken a number of measures to control inflation specially food inflation. “The measures, inter alia, taken include both general measures and specific measures”, the Survey adds.

According the Survey, the general measures include regular monitoring of Inflation, issuing advisories to States against hoarding and black marketing, holding regular review meetings on prices and availability of key commodities, higher Minimum Support Prices for pulses and other crops to incentivize production and setting up of Price Stabilization Fund (PSF) for procurement of agri-horticultural commodities.

As per the Survey, the specific measures taken by the Government include releasing the onions at reasonable prices from the stock procured under PSF, utilization of pulses from buffer for strategic market interventions and to meet the requirements of Army and Central Para-Military Forces, etc.

Inflation control measures emphasize food-price stabilization and market interventions to sustain low headline inflation nationwide. The Economic Survey attributes the multi-year decline in headline inflation to subdued food inflation, noting rural inflation fell more sharply than urban inflation and many States recorded lower CPI rates. It highlights food deflation driven by vegetables, fruits, pulses, sugar and eggs, and records moderate WPI movements. To contain inflation the Government uses monitoring, advisories, production incentives and market interventions, including strategic releases from the Price Stabilization Fund and utilization of buffer stocks to stabilize food prices.