Page 190 - economic_survey_2021-2022

164 Economic Survey 2021-22

vehicle’ and ‘diesel for vehicle’, which have relatively large weights, are not included in ‘fuel
and light’. These fuel items are included in ‘transport and communication’, a subgroup under the
miscellaneous group. Therefore, conventional way of calculating retail core inflation, instead of
excluding the volatile fuel items from core inflation, continue to include volatile fuel items in
core inflation. As a result, the fuel price rise continues to impact core inflation.
5.8 A ‘refined’ core inflation was constructed to address this anomaly by excluding main fuel
items viz., ‘petrol for vehicle’, ‘diesel for vehicle’ and ‘lubricants and other fuels for vehicles’,
in addition to ‘food and beverages’ and ‘fuel and light’ from the headline retail inflation. Both
the conventional core inflation and refined core inflation are presented in figure 4. Since June
2020, refined core inflation has been much below the conventional core inflation, indicating the
impact of inflation in fuel items in the conventional core inflation measure.

Figure 4: Retail Core and ‘Refined Core’ inflation

7.0 Retail Core inflation Refined core inflation
6.5
Inflation rate (yoy) (per cent) 5.5
6.0

5.0
4.5

4.0
3.5

3.0
Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21

Source: NSO, MoSPI
Note: Item level indices for ‘petrol for vehicle’, ‘diesel for vehicle’ and ‘lubricants and other fuels for vehicles’
were not available for March-May 2020.
What has driven retail inflation and why?

5.9 Unlike 2020-21 (April-December) when ‘food and beverage’ drove inflation, during
2021-22 (April to December) the major drivers of retail inflation have been miscellaneous and
‘fuel and light’ group. Contribution of miscellaneous group has increased from 26.8 per cent
in 2020-21 (April-December) to 35 per cent in 2021-22 (April-December) and contribution of
‘fuel and light’ increased from 2.3 per cent to 14.9 per cent (Figure 5). On the other hand, during
the same period, contribution of ‘food and beverages’ declined from 59 per cent to 31.9 per cent.
Within ‘miscellaneous group’, sub-group ‘transport and communication’ contributed the most,
followed by health.