Breaking down India’s April inflation data in 5 charts

Photo: Mint
Photo: Mint


  • The sharp relief in retail inflation was mainly from a favourable base as prices had surged last April as an outcome of Ukraine’s invasion

India’s retail inflation fell sharply to an 18-month low of 4.7% in April from 5.7% the previous month, data released on Friday showed. This was thanks to a favourable base but also due to lower food and core inflation, both of which had been key issues for the past one year. With inflation falling below the 5% mark for the first time since November 2021 and expected to stay comfortably below the upper tolerance limit of 6% this financial year, economists believe the Reserve Bank of India may opt for a long pause in repo rate hikes to support growth. However, some trends may still be watched closely. Here is a breakdown:

Inflation Down, Prices Up

The sharp relief in retail inflation was mainly from a favourable base as prices had surged last April as an outcome of Ukraine’s invasion. On a month-on-month basis, the consumer price index (CPI) rose 0.51%, the sharpest rise in six months. Several items in the index reported a substantial pace of price rise, including vegetables, pulses, sugar, housing, education, and personal care products.

The comfort from the high base will continue in May. If prices remain unchanged, inflation will decline by another percentage point, and even if the prices rise by 0.5% month-on-month, inflation will come down to 4.2%, show Mint calculations. While the base will normalize thereafter, inflation may still remain comfortably below the upper tolerance bound, with some economists even predicting a sub-5% print in 2023-24. While consumers may continue to feel the price pinch, the cool-off has set the stage for a long pause on repo rate hikes.

Price Pinch

Inflation has cooled down, giving policy makers some solace against the backdrop of global economic uncertainty, but consumers are likely to continue to experience the price pinch. A Mint analysis of 299 items for which the statistics ministry releases the data shows that a significant number of items are still recording a sharp sequential price pressure. In April, the sequential inflation rate paced up for 141 items—the highest number of such items in three months. Potatoes; sugar and confectionery; eggs, meat and fish; air conditioner and coolers; and goods for recreation and hobbies reported a sequential rise in prices in April as opposed to a decline in March. In case of pulses and products and house rent, the pace of price rise increased, while in case of air fare, the deflation slowed down. Since most of these prices are linked to seasonal trends, economists expect the pace to moderate in coming months.

Role Reversal

The biggest source of relief has come from the easing prices of cereals and related products. Inflation for this group slowed to 13.7% in April from 15.3% in March. The index declined for the second consecutive month, showing a trend of easing price pressures. While still in double digits, inflation for cereals and products is expected to keep on declining, adding relief to the headline figure. “Overall food inflation is likely to remain manageable, even as seasonal price rises can be seen in perishable food items," said Barclays in a report last week.

On the other hand, a sharp decline in vegetable prices had pulled inflation down in November and December but the contrary is happening now: vegetable prices are rising in line with their seasonal trend and may become a cause of worry if they persist for longer in the event of a rainfall deficit due to the predicted El Niño effect.

Gold Rush

With global uncertainty rising, interest in gold purchases has shot up. First it was the Russia-Ukraine war, which was then followed up by high inflation and then sharp monetary policy tightening that led to high demand for gold and a sharp rise in gold prices. The collapse of the Silicon Valley Bank and Credit Suisse-UBS merger added further to the gold rush, which is likely to continue throughout 2023, according to analysts.

In India, where gold is considered one of the best investments during uncertainty, prices of the yellow metal rose, which reflected in CPI data. Gold inflation surged to 13.9% in April, the highest in over two years. With a weight of 1.08% in the CPI basket, gold pushed headline inflation up by 20 basis points. Since gold is one of 20 items in the 299-item consumer price basket with weight more than 1%, its effect on inflation will be key in coming months.

Wholesale Offer?

Meanwhile, after staying in double digits for a year and a half, inflation in the wholesale price index (WPI) began cooling in October 2022 as prices of commodities eased. By April, it had set into negative territory for the first time since July 2020 as the base effect also kicked in. Deflation in manufactured products was even sharper.

Even as food articles and crude oil, petroleum and natural gas saw sequential price rise, WPI inflation will likely stay negative for a few more months. “The recent correction in global commodity prices is expected to augur well for the core-WPI print for May 2023, while the flattish trend in average rupee per dollar pair is unlikely to materially impact the landed cost of imported goods," ICRA said in a report on Monday. While this will lower input costs, the pass-through effect to the consumer side may take time as producers may look to increase their profit margins, economists said

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