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05

Prices and Inflation CHAPTER

As economic activity started showing signs of picking-up in the second year of the pandemic,
the global economy faced the fresh challenge of rising global inflation. COVID-19 related
stimulus spending in major economies along with pent-up demand boosting consumer
spending pushed inflation up in many advanced and emerging economies. The surge in
energy, food, non-food commodities, and input prices, supply constraints, disruption of
global supply chains, and rising freight costs across the globe stoked global inflation
during the year. Crude oil prices also witnessed an upswing during the year on the back of
increased demand from recovering economies and supply restrictions by the Organization
of the Petroleum Exporting Countries and its allies (OPEC+).

On the domestic front, the average headline Consumer Price Index-Combined (CPI-C)
inflation in India moderated to 5.2 per cent in 2021-22 (April-December) from 6.6 per
cent in the corresponding period of 2020-21 and was recorded at 5.6 per cent in December
2021. The Consumer Price Index inflation remained range bound as food prices eased
considerably due to the supply management response by the Government. Food inflation
remained benign during the year at 2.9 per cent (April-December) as against 9.1 per
cent in the corresponding period last year. In the case of vegetables, prices of onions and
potatoes remained under control, though retail prices of tomatoes witnessed an uptick
during September to November 2021 due to untimely rains in major producing states.
However, with fresh arrivals in the market in December, retail prices of tomatoes too,
are showing signs of easing. While seasonality plays a significant role in the case of
vegetables, random shocks like untimely rains also have an impact on their availability
and prices. A strong network of cold storage chains well supported by effective transport
infrastructure is needed to stabilize the prices of such perishable commodities. Effective
supply-side management kept prices of most essential commodities under control during
the year. Proactive measures were taken to contain the price rise in pulses and edible
oils that reported high inflation reflecting the impact of imported inflation in these
commodities. Reduction in central excise and subsequent cuts in VAT by most States has
also helped ease petrol and diesel prices.

Wholesale inflation based on Wholesale Price Index (WPI), after remaining very benign
during the previous financial year on account of pandemic induced weakening of
economic activity, record low global crude oil prices and weak demand, witnessed a sharp
uptick, rising to 12.5 per cent during 2021-22 (April-December). This was attributable
to the pick-up in economic activity, sharp increase in international prices of crude oil
and other imported inputs, and high freight costs. The consequent divergence between