2021 in numbers: Inflation in India - Hindustan Times
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2021 in numbers: Inflation in India

ByAbhishek Jha
Dec 15, 2021 04:50 PM IST

The World Inequality Report released this month showed that inequality has worsened after Covid. How did inflation affect Indian households in 2021? Here are three charts that explain this.

As the last two years have shown, the Covid-19 pandemic has hurt jobs and incomes. High inflation under such circumstances can further depress real incomes and the purchasing power of the poorest households, furthering economic inequality. The World Inequality Report released earlier this month showed that inequality has worsened after the pandemic. How did inflation affect Indian households in 2021? Here are three charts that explain this.

Core inflation – for commodities excluding the food group and the fuel and light (kerosene, electricity, petrol, diesel and even firewood) group – was 4.96% for January-November last year, although it was increasing almost every month (Bloomberg via Getty Images) PREMIUM
Core inflation – for commodities excluding the food group and the fuel and light (kerosene, electricity, petrol, diesel and even firewood) group – was 4.96% for January-November last year, although it was increasing almost every month (Bloomberg via Getty Images)

Inflation facing households is captured by the Consumer Price Index (CPI). Headline CPI inflation for the January-November period was 5.09% in 2021. This is within the 2%-6% band of India’s inflation target. However, a favourable base effect has a role to play in the inflation this year. January-November inflation was 6.82% in 2020, the highest for the interval since 2013, when it was 10.16%. Even the 5.09% inflation this year – also seen in 2016 -- is the second highest inflation rate since 2015.

To be sure, the nature of inflation this year is somewhat different from last year. Core inflation – for commodities excluding the food group and the fuel and light (kerosene, electricity, petrol, diesel and even firewood) group – was 4.96% for January-November last year, although it was increasing almost every month. Food inflation for the same interval was 10.20% in 2020. Only in 2013 was food inflation higher than this level in the new series of CPI which begins in 2011. This shows that inflation in 2020 was largely driven by food inflation, which ran high because of supply chain disruptions. Food expenditure makes up 40% of an average Indian household’s budget. Inflation in the fuel and light group, which makes up the other half of non-core inflation, was only 3.08% last year because of low crude oil prices.

In 2021, these trends have reversed. Core inflation for the January-November period is 6.05% whereas non-core inflation is 3.97%. A level of core inflation this high in this interval was last seen in the 2012-2014 period. It had remained below the 6% mark in all the years since until 2021. Analysts attribute the high level of core inflation to high raw material prices and continued disruption global supply chains. Wholesale Price Index (WPI) inflation in India, for example, has been in double digits every month since April this year, and was at 14.2% in November, a historic high. The Bloomberg Commodity Index – a weighted average of the international prices of energy, grains, industrial and precious metals, cotton, and livestock – has also increased consistently since the pandemic.

In 2021, these trends have reversed. Core inflation for the January-November period is 6.05% whereas non-core inflation is 3.97%. A level of core inflation this high in this interval was last seen in the 2012-2014 period. It had remained below the 6% mark in all the years since until 2021. Analysts attribute the high level of core inflation to high raw material prices and continued disruption global supply chains. Wholesale Price Index (WPI) inflation in India, for example, has been in double digits every month since April this year, and was at 14.2% in November, a historic high. The Bloomberg Commodity Index – a weighted average of the international prices of energy, grains, industrial and precious metals, cotton, and livestock – has also increased consistently since the pandemic.

 

To be sure, the moderation in non-core inflation is also only because of a moderation in food prices, where inflation is low because of a favourable base effect due to high inflation in 2020. Fuel and light inflation for the same interval is 10.04%, lower only than in 2012 in the new series, when it was 10.29%.

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  • ABOUT THE AUTHOR
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    Abhishek Jha is a data journalist. He analyses public data for finding news, with a focus on the environment, Indian politics and economy, and Covid-19.

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