Prices and Inflation 2022-23 | Indian Economy for UPSC CSE PDF Download

 Page 1


CHAPTER
05
PRICES AND INFLA TION: 
SUCCESSFUL TIGHT -ROPE W ALKING
Consumer price inflation in India went through three phases in 2022. A rising phase up 
to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per 
cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. The 
rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in 
crop harvests due to excessive heat in some parts of the country. Prompt and adequate 
measures by the Government of India and the Reserve Bank of India (RBI) have reined in 
the rise in inflation and brought it within the Central Bank’ s tolerance limit. In contrast, 
major Western countries, which pumped stimulus during the pandemic periods, continue 
to grapple with high levels of inflation. 
The divergence between a relatively high Wholesale Price Index (WPI) inflation and 
lower Consumer Price Index (CPI) inflation widened in May 2022 primarily owing to a 
difference in relative weights of the two indices and the lagged effect of imported input 
costs on retail prices. However, the gap between the two measures of inflation has reduced 
since then, demonstrating a tendency towards convergence. An important measure 
of demand-pull inflation - core inflation - remains sticky. There have been significant 
variations in retail inflation rates among the States and Union Territories (UTs) of India. 
According to Housing Price Index (HPI) published by National Housing Bank (NHB), the 
overall increase in composite HPI assessment and HPI market price in Quarter Ending 
(QE) September 2022 over QE September 2021 indicates a revival in the housing finance 
sector. 
RBI’ s Monetary Policy Committee increased the policy repo rate under the liquidity 
adjustment facility (LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between May 
and December 2022. Central Government has undertaken fiscal measures like reduction 
in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition 
of export duty on rice, reduction in import duties and cess on pulses, rationalisation of 
tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer 
stock for onion and pulses and rationalisation of import duties on raw materials used in 
the manufactured products. 
The RBI forecasts elevated domestic prices for cereals and spices in the near term, owing 
to supply shortages. Milk prices are also expected to spike, reflecting high feed costs. 
In general, climate across the world has become increasingly erratic, further fortifying 
upside risks to food prices. A lot depends on industrial input prices: they may ease, but 
Page 2


CHAPTER
05
PRICES AND INFLA TION: 
SUCCESSFUL TIGHT -ROPE W ALKING
Consumer price inflation in India went through three phases in 2022. A rising phase up 
to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per 
cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. The 
rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in 
crop harvests due to excessive heat in some parts of the country. Prompt and adequate 
measures by the Government of India and the Reserve Bank of India (RBI) have reined in 
the rise in inflation and brought it within the Central Bank’ s tolerance limit. In contrast, 
major Western countries, which pumped stimulus during the pandemic periods, continue 
to grapple with high levels of inflation. 
The divergence between a relatively high Wholesale Price Index (WPI) inflation and 
lower Consumer Price Index (CPI) inflation widened in May 2022 primarily owing to a 
difference in relative weights of the two indices and the lagged effect of imported input 
costs on retail prices. However, the gap between the two measures of inflation has reduced 
since then, demonstrating a tendency towards convergence. An important measure 
of demand-pull inflation - core inflation - remains sticky. There have been significant 
variations in retail inflation rates among the States and Union Territories (UTs) of India. 
According to Housing Price Index (HPI) published by National Housing Bank (NHB), the 
overall increase in composite HPI assessment and HPI market price in Quarter Ending 
(QE) September 2022 over QE September 2021 indicates a revival in the housing finance 
sector. 
RBI’ s Monetary Policy Committee increased the policy repo rate under the liquidity 
adjustment facility (LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between May 
and December 2022. Central Government has undertaken fiscal measures like reduction 
in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition 
of export duty on rice, reduction in import duties and cess on pulses, rationalisation of 
tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer 
stock for onion and pulses and rationalisation of import duties on raw materials used in 
the manufactured products. 
The RBI forecasts elevated domestic prices for cereals and spices in the near term, owing 
to supply shortages. Milk prices are also expected to spike, reflecting high feed costs. 
In general, climate across the world has become increasingly erratic, further fortifying 
upside risks to food prices. A lot depends on industrial input prices: they may ease, but 
118 Economic Survey 2022-23
1
 World Economic Outlook (WEO), IMF, October 2022
on the flip side, their delayed pass-through to consumer prices may contribute to the 
stickiness of core inflation. 
In general, the year 2022 was marked by a return of high inflation in the advanced world 
after three to four decades, depending on the country. In India, the government and the 
central bank took decisive measures to cap the rise in prices. India’ s retail inflation rate 
peaked at 7.8 per cent in April 2022. The overshoot of inflation above the upper end of the 
target range in India was one of the lowest in the world. We are confident that authorities 
would remain vigilant and be as proactive as they were in 2022 should inflation pressures 
re-emerge in India in 2023.
Introduction
5.1 Rising prices are always a cause of concern for policymakers as they hurt the common 
man the most. The perils of inflation are felt more in developing economies, where necessities 
have a higher share in the consumption basket than in developed countries. In recent years, 
India’s inflation rate has been well-behaved, lying tamely below the RBI target rate of 4 per cent 
from 2017 to 2019. 
5.2 In 2020, supply-side disruptions pushed inflation beyond the RBI’s upper tolerance limit 
of 6 per cent. The pandemic delivered a larger shock on supply than it did on demand, through 
supply-chain disruptions in the case of essential goods, food, medicine and industrial goods. In 
turn, this aggravated cost-push inflation in the country. 
5.3 As the pandemic receded, the conflict in Russia-Ukraine broke out, bringing in its wake 
worldwide inflation, fuelled mostly by surging prices of crude oil and other commodities. Prices 
soared to a decadal high and ate into household budgets, in turn prodding Central Banks to 
tighten monetary policy. A convalescing world economy was left to confront unprecedented 
rates of inflation. The spectre of stagflation loomed large on the horizon. In response, developed 
economies were left with no option but to raise interest rates. As the US Federal Reserve raised 
rates, the US dollar appreciated, making dollar-denominated fuel imports even dearer. 
5.4 In advanced economies, the rate of inflation is projected by the International Monetary 
Fund (IMF) to increase from 3.1 per cent in 2021 to 7.2 per cent in 2022, the highest since 1982. 
The Euro area saw the rate reach 10.0 per cent in September 2022 (WEO, October 2022
1
). The 
US inflation reached its 40-year high at 9.1 per cent in June 2022 before moderating to 6.5 per 
cent in December 2022, while the UK saw an annual price rise of 9.2 per cent in December 2022. 
Germany witnessed inflation of 8.6 per cent in December 2022. Among emerging markets, 
Brazil saw a moderation in price trends, while Turkey’s inflation was above 80 per cent from 
August to November 2022 before declining slightly to 64.3 per cent in December 2022. The 
war had compounded the effects of a strong recovery in demand for goods and services after 
the pandemic. The inflation rate in Emerging Markets and Developing Economies (EMDEs) 
is anticipated to have increased from 5.9 per cent in 2021 to 9.9 per cent in 2022 (WEO, 
October 2022). 
Page 3


CHAPTER
05
PRICES AND INFLA TION: 
SUCCESSFUL TIGHT -ROPE W ALKING
Consumer price inflation in India went through three phases in 2022. A rising phase up 
to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per 
cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. The 
rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in 
crop harvests due to excessive heat in some parts of the country. Prompt and adequate 
measures by the Government of India and the Reserve Bank of India (RBI) have reined in 
the rise in inflation and brought it within the Central Bank’ s tolerance limit. In contrast, 
major Western countries, which pumped stimulus during the pandemic periods, continue 
to grapple with high levels of inflation. 
The divergence between a relatively high Wholesale Price Index (WPI) inflation and 
lower Consumer Price Index (CPI) inflation widened in May 2022 primarily owing to a 
difference in relative weights of the two indices and the lagged effect of imported input 
costs on retail prices. However, the gap between the two measures of inflation has reduced 
since then, demonstrating a tendency towards convergence. An important measure 
of demand-pull inflation - core inflation - remains sticky. There have been significant 
variations in retail inflation rates among the States and Union Territories (UTs) of India. 
According to Housing Price Index (HPI) published by National Housing Bank (NHB), the 
overall increase in composite HPI assessment and HPI market price in Quarter Ending 
(QE) September 2022 over QE September 2021 indicates a revival in the housing finance 
sector. 
RBI’ s Monetary Policy Committee increased the policy repo rate under the liquidity 
adjustment facility (LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between May 
and December 2022. Central Government has undertaken fiscal measures like reduction 
in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition 
of export duty on rice, reduction in import duties and cess on pulses, rationalisation of 
tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer 
stock for onion and pulses and rationalisation of import duties on raw materials used in 
the manufactured products. 
The RBI forecasts elevated domestic prices for cereals and spices in the near term, owing 
to supply shortages. Milk prices are also expected to spike, reflecting high feed costs. 
In general, climate across the world has become increasingly erratic, further fortifying 
upside risks to food prices. A lot depends on industrial input prices: they may ease, but 
118 Economic Survey 2022-23
1
 World Economic Outlook (WEO), IMF, October 2022
on the flip side, their delayed pass-through to consumer prices may contribute to the 
stickiness of core inflation. 
In general, the year 2022 was marked by a return of high inflation in the advanced world 
after three to four decades, depending on the country. In India, the government and the 
central bank took decisive measures to cap the rise in prices. India’ s retail inflation rate 
peaked at 7.8 per cent in April 2022. The overshoot of inflation above the upper end of the 
target range in India was one of the lowest in the world. We are confident that authorities 
would remain vigilant and be as proactive as they were in 2022 should inflation pressures 
re-emerge in India in 2023.
Introduction
5.1 Rising prices are always a cause of concern for policymakers as they hurt the common 
man the most. The perils of inflation are felt more in developing economies, where necessities 
have a higher share in the consumption basket than in developed countries. In recent years, 
India’s inflation rate has been well-behaved, lying tamely below the RBI target rate of 4 per cent 
from 2017 to 2019. 
5.2 In 2020, supply-side disruptions pushed inflation beyond the RBI’s upper tolerance limit 
of 6 per cent. The pandemic delivered a larger shock on supply than it did on demand, through 
supply-chain disruptions in the case of essential goods, food, medicine and industrial goods. In 
turn, this aggravated cost-push inflation in the country. 
5.3 As the pandemic receded, the conflict in Russia-Ukraine broke out, bringing in its wake 
worldwide inflation, fuelled mostly by surging prices of crude oil and other commodities. Prices 
soared to a decadal high and ate into household budgets, in turn prodding Central Banks to 
tighten monetary policy. A convalescing world economy was left to confront unprecedented 
rates of inflation. The spectre of stagflation loomed large on the horizon. In response, developed 
economies were left with no option but to raise interest rates. As the US Federal Reserve raised 
rates, the US dollar appreciated, making dollar-denominated fuel imports even dearer. 
5.4 In advanced economies, the rate of inflation is projected by the International Monetary 
Fund (IMF) to increase from 3.1 per cent in 2021 to 7.2 per cent in 2022, the highest since 1982. 
The Euro area saw the rate reach 10.0 per cent in September 2022 (WEO, October 2022
1
). The 
US inflation reached its 40-year high at 9.1 per cent in June 2022 before moderating to 6.5 per 
cent in December 2022, while the UK saw an annual price rise of 9.2 per cent in December 2022. 
Germany witnessed inflation of 8.6 per cent in December 2022. Among emerging markets, 
Brazil saw a moderation in price trends, while Turkey’s inflation was above 80 per cent from 
August to November 2022 before declining slightly to 64.3 per cent in December 2022. The 
war had compounded the effects of a strong recovery in demand for goods and services after 
the pandemic. The inflation rate in Emerging Markets and Developing Economies (EMDEs) 
is anticipated to have increased from 5.9 per cent in 2021 to 9.9 per cent in 2022 (WEO, 
October 2022). 
119 Prices and Inflation: Successful Tight-rope Walking
Figure V .1: Record Consumer Price Inflation in 2022 Calendar Year 
1 .5
2 .7
2 .0
1 .4 1 .4
0 .3
0 .8
1 .7
2 .0
1 .4
0 .7
3 .1
7 .2
4 .4
5 .7
7 .1
5 .8
5 .5
4 .7 4 .7
4 .4
4 .5
5 .0
5 .1 5 .1
5 .9
9 .9
8 .1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Inflation Rate (per cent)
Advanced economies EMDEs
Source: World Economic Outlook, October 2022, IMF
Note: *The figure are annual averages; figures for 2022 and 2023 are projections. 
Advanced Economies include 40 economies and EMDEs include 156 economies as per IMF classification
 
Figure V .2: High Consumer Price Inflation in Advanced Economies
9.2
6.5
5.8
8.6
4
5
6
7
8
9
10
11
12
13
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22
Inflation Rate (per cent)
U.K USA Brazil Germany
 Source: OECD
5.5 The groundwork for the commendable inflation management in India was laid earlier as 
fiscal and monetary measures adopted to stave off the pandemic-induced economic woes were 
prudent and well-calibrated. India chose not to overstimulate, and hence price pressures due to 
Page 4


CHAPTER
05
PRICES AND INFLA TION: 
SUCCESSFUL TIGHT -ROPE W ALKING
Consumer price inflation in India went through three phases in 2022. A rising phase up 
to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per 
cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. The 
rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in 
crop harvests due to excessive heat in some parts of the country. Prompt and adequate 
measures by the Government of India and the Reserve Bank of India (RBI) have reined in 
the rise in inflation and brought it within the Central Bank’ s tolerance limit. In contrast, 
major Western countries, which pumped stimulus during the pandemic periods, continue 
to grapple with high levels of inflation. 
The divergence between a relatively high Wholesale Price Index (WPI) inflation and 
lower Consumer Price Index (CPI) inflation widened in May 2022 primarily owing to a 
difference in relative weights of the two indices and the lagged effect of imported input 
costs on retail prices. However, the gap between the two measures of inflation has reduced 
since then, demonstrating a tendency towards convergence. An important measure 
of demand-pull inflation - core inflation - remains sticky. There have been significant 
variations in retail inflation rates among the States and Union Territories (UTs) of India. 
According to Housing Price Index (HPI) published by National Housing Bank (NHB), the 
overall increase in composite HPI assessment and HPI market price in Quarter Ending 
(QE) September 2022 over QE September 2021 indicates a revival in the housing finance 
sector. 
RBI’ s Monetary Policy Committee increased the policy repo rate under the liquidity 
adjustment facility (LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between May 
and December 2022. Central Government has undertaken fiscal measures like reduction 
in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition 
of export duty on rice, reduction in import duties and cess on pulses, rationalisation of 
tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer 
stock for onion and pulses and rationalisation of import duties on raw materials used in 
the manufactured products. 
The RBI forecasts elevated domestic prices for cereals and spices in the near term, owing 
to supply shortages. Milk prices are also expected to spike, reflecting high feed costs. 
In general, climate across the world has become increasingly erratic, further fortifying 
upside risks to food prices. A lot depends on industrial input prices: they may ease, but 
118 Economic Survey 2022-23
1
 World Economic Outlook (WEO), IMF, October 2022
on the flip side, their delayed pass-through to consumer prices may contribute to the 
stickiness of core inflation. 
In general, the year 2022 was marked by a return of high inflation in the advanced world 
after three to four decades, depending on the country. In India, the government and the 
central bank took decisive measures to cap the rise in prices. India’ s retail inflation rate 
peaked at 7.8 per cent in April 2022. The overshoot of inflation above the upper end of the 
target range in India was one of the lowest in the world. We are confident that authorities 
would remain vigilant and be as proactive as they were in 2022 should inflation pressures 
re-emerge in India in 2023.
Introduction
5.1 Rising prices are always a cause of concern for policymakers as they hurt the common 
man the most. The perils of inflation are felt more in developing economies, where necessities 
have a higher share in the consumption basket than in developed countries. In recent years, 
India’s inflation rate has been well-behaved, lying tamely below the RBI target rate of 4 per cent 
from 2017 to 2019. 
5.2 In 2020, supply-side disruptions pushed inflation beyond the RBI’s upper tolerance limit 
of 6 per cent. The pandemic delivered a larger shock on supply than it did on demand, through 
supply-chain disruptions in the case of essential goods, food, medicine and industrial goods. In 
turn, this aggravated cost-push inflation in the country. 
5.3 As the pandemic receded, the conflict in Russia-Ukraine broke out, bringing in its wake 
worldwide inflation, fuelled mostly by surging prices of crude oil and other commodities. Prices 
soared to a decadal high and ate into household budgets, in turn prodding Central Banks to 
tighten monetary policy. A convalescing world economy was left to confront unprecedented 
rates of inflation. The spectre of stagflation loomed large on the horizon. In response, developed 
economies were left with no option but to raise interest rates. As the US Federal Reserve raised 
rates, the US dollar appreciated, making dollar-denominated fuel imports even dearer. 
5.4 In advanced economies, the rate of inflation is projected by the International Monetary 
Fund (IMF) to increase from 3.1 per cent in 2021 to 7.2 per cent in 2022, the highest since 1982. 
The Euro area saw the rate reach 10.0 per cent in September 2022 (WEO, October 2022
1
). The 
US inflation reached its 40-year high at 9.1 per cent in June 2022 before moderating to 6.5 per 
cent in December 2022, while the UK saw an annual price rise of 9.2 per cent in December 2022. 
Germany witnessed inflation of 8.6 per cent in December 2022. Among emerging markets, 
Brazil saw a moderation in price trends, while Turkey’s inflation was above 80 per cent from 
August to November 2022 before declining slightly to 64.3 per cent in December 2022. The 
war had compounded the effects of a strong recovery in demand for goods and services after 
the pandemic. The inflation rate in Emerging Markets and Developing Economies (EMDEs) 
is anticipated to have increased from 5.9 per cent in 2021 to 9.9 per cent in 2022 (WEO, 
October 2022). 
119 Prices and Inflation: Successful Tight-rope Walking
Figure V .1: Record Consumer Price Inflation in 2022 Calendar Year 
1 .5
2 .7
2 .0
1 .4 1 .4
0 .3
0 .8
1 .7
2 .0
1 .4
0 .7
3 .1
7 .2
4 .4
5 .7
7 .1
5 .8
5 .5
4 .7 4 .7
4 .4
4 .5
5 .0
5 .1 5 .1
5 .9
9 .9
8 .1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Inflation Rate (per cent)
Advanced economies EMDEs
Source: World Economic Outlook, October 2022, IMF
Note: *The figure are annual averages; figures for 2022 and 2023 are projections. 
Advanced Economies include 40 economies and EMDEs include 156 economies as per IMF classification
 
Figure V .2: High Consumer Price Inflation in Advanced Economies
9.2
6.5
5.8
8.6
4
5
6
7
8
9
10
11
12
13
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22
Inflation Rate (per cent)
U.K USA Brazil Germany
 Source: OECD
5.5 The groundwork for the commendable inflation management in India was laid earlier as 
fiscal and monetary measures adopted to stave off the pandemic-induced economic woes were 
prudent and well-calibrated. India chose not to overstimulate, and hence price pressures due to 
120 Economic Survey 2022-23
the Russia-Ukraine conflict could be contained. Excessive heat in summer and uneven rainfall 
thereafter in some parts of the country affected the farm sector, reducing supply and causing 
prices of some major products to rise. India’s inflation rate peaked in April 2022 at 7.8 per cent 
before moderating to 5.7 per cent in December 2022 on the back of good monsoons as well as 
prompt government measures that ensured adequate food supply. Global economic slowdown 
and interest rate increases brought down commodity prices, contributing to a substantial decline 
in wholesale price inflation. Thus, input price pressures on Indian manufacturers abated. 
5.6 Even as inflation abated at the wholesale level, there has been a pass-through of previously 
high input costs onto retail prices. Core inflation remains sticky at nearly 6 per cent and reflects the 
second-round effects of the supply shocks witnessed earlier this year. Further, with the recovery 
of demand, there has been a pickup in service inflation. Against this backdrop, we discuss trends 
and drivers of retail and wholesale price inflation in FY22 and FY23, state-wise and rural-
urban differential in consumer inflation, fuel price inflation, CPI and WPI convergence, housing 
prices, pharmaceutical pricing and fiscal as well as monetary policy measures undertaken to 
contain inflation as the chapter proceeds.
Domestic Retail Inflation 
Headline Inflation Declined from its Peak
5.7 FY22 witnessed lower CPI-Combined (CPI-C) based retail inflation as compared to FY21. 
Even so, inflation remained on the higher side when compared to the moderation seen during the 
years prior to the pandemic. During FY22, some sub-groups such as ‘oils & fats’, ‘fuel & light’ 
and ‘transport & communication’ reported high inflation. This was mainly driven by supply 
disruptions caused by pandemic-induced lockdowns. The subsequent year (FY23) began with 
the Russia-Ukraine crisis that led to high headline inflation rate in April 2022. 
5.8 In FY23, retail inflation was mainly driven by higher food inflation, while core inflation 
stayed at a moderate level. Food inflation ranged between 4.2 per cent to 8.6 per cent between April 
and December 2022, while the core inflation rate stayed at around 6 per cent except in April 2022.
Table V .1: Average Annual Retail Inflation Based on CPI-C (per cent) (base: 2012=100)
Groups/Sub-groups Weight FY20 FY21 FY22 FY23*
Food & beverages 45.9 6.0 7.3 4.2 7.0
Cereals and products 9.7 2.8 3.8 0.5 9.3
Meat and fish 3.6 9.3 15.4 7.9 4.7
Egg 0.4 4.5 12.9 7.6 -1.0
Milk and products 6.6 2.9 5.4 2.8 6.8
Oils and fats 3.6 2.9 16.0 27.4 5.4
Fruits 2.9 0.7 2.6 6.2 4.4
Vegetables 6.0 21.3 5.8 -7.2 7.6
Pulses and products 2.4 9.9 16.4 6.0 1.8
Page 5


CHAPTER
05
PRICES AND INFLA TION: 
SUCCESSFUL TIGHT -ROPE W ALKING
Consumer price inflation in India went through three phases in 2022. A rising phase up 
to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per 
cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. The 
rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in 
crop harvests due to excessive heat in some parts of the country. Prompt and adequate 
measures by the Government of India and the Reserve Bank of India (RBI) have reined in 
the rise in inflation and brought it within the Central Bank’ s tolerance limit. In contrast, 
major Western countries, which pumped stimulus during the pandemic periods, continue 
to grapple with high levels of inflation. 
The divergence between a relatively high Wholesale Price Index (WPI) inflation and 
lower Consumer Price Index (CPI) inflation widened in May 2022 primarily owing to a 
difference in relative weights of the two indices and the lagged effect of imported input 
costs on retail prices. However, the gap between the two measures of inflation has reduced 
since then, demonstrating a tendency towards convergence. An important measure 
of demand-pull inflation - core inflation - remains sticky. There have been significant 
variations in retail inflation rates among the States and Union Territories (UTs) of India. 
According to Housing Price Index (HPI) published by National Housing Bank (NHB), the 
overall increase in composite HPI assessment and HPI market price in Quarter Ending 
(QE) September 2022 over QE September 2021 indicates a revival in the housing finance 
sector. 
RBI’ s Monetary Policy Committee increased the policy repo rate under the liquidity 
adjustment facility (LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between May 
and December 2022. Central Government has undertaken fiscal measures like reduction 
in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition 
of export duty on rice, reduction in import duties and cess on pulses, rationalisation of 
tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer 
stock for onion and pulses and rationalisation of import duties on raw materials used in 
the manufactured products. 
The RBI forecasts elevated domestic prices for cereals and spices in the near term, owing 
to supply shortages. Milk prices are also expected to spike, reflecting high feed costs. 
In general, climate across the world has become increasingly erratic, further fortifying 
upside risks to food prices. A lot depends on industrial input prices: they may ease, but 
118 Economic Survey 2022-23
1
 World Economic Outlook (WEO), IMF, October 2022
on the flip side, their delayed pass-through to consumer prices may contribute to the 
stickiness of core inflation. 
In general, the year 2022 was marked by a return of high inflation in the advanced world 
after three to four decades, depending on the country. In India, the government and the 
central bank took decisive measures to cap the rise in prices. India’ s retail inflation rate 
peaked at 7.8 per cent in April 2022. The overshoot of inflation above the upper end of the 
target range in India was one of the lowest in the world. We are confident that authorities 
would remain vigilant and be as proactive as they were in 2022 should inflation pressures 
re-emerge in India in 2023.
Introduction
5.1 Rising prices are always a cause of concern for policymakers as they hurt the common 
man the most. The perils of inflation are felt more in developing economies, where necessities 
have a higher share in the consumption basket than in developed countries. In recent years, 
India’s inflation rate has been well-behaved, lying tamely below the RBI target rate of 4 per cent 
from 2017 to 2019. 
5.2 In 2020, supply-side disruptions pushed inflation beyond the RBI’s upper tolerance limit 
of 6 per cent. The pandemic delivered a larger shock on supply than it did on demand, through 
supply-chain disruptions in the case of essential goods, food, medicine and industrial goods. In 
turn, this aggravated cost-push inflation in the country. 
5.3 As the pandemic receded, the conflict in Russia-Ukraine broke out, bringing in its wake 
worldwide inflation, fuelled mostly by surging prices of crude oil and other commodities. Prices 
soared to a decadal high and ate into household budgets, in turn prodding Central Banks to 
tighten monetary policy. A convalescing world economy was left to confront unprecedented 
rates of inflation. The spectre of stagflation loomed large on the horizon. In response, developed 
economies were left with no option but to raise interest rates. As the US Federal Reserve raised 
rates, the US dollar appreciated, making dollar-denominated fuel imports even dearer. 
5.4 In advanced economies, the rate of inflation is projected by the International Monetary 
Fund (IMF) to increase from 3.1 per cent in 2021 to 7.2 per cent in 2022, the highest since 1982. 
The Euro area saw the rate reach 10.0 per cent in September 2022 (WEO, October 2022
1
). The 
US inflation reached its 40-year high at 9.1 per cent in June 2022 before moderating to 6.5 per 
cent in December 2022, while the UK saw an annual price rise of 9.2 per cent in December 2022. 
Germany witnessed inflation of 8.6 per cent in December 2022. Among emerging markets, 
Brazil saw a moderation in price trends, while Turkey’s inflation was above 80 per cent from 
August to November 2022 before declining slightly to 64.3 per cent in December 2022. The 
war had compounded the effects of a strong recovery in demand for goods and services after 
the pandemic. The inflation rate in Emerging Markets and Developing Economies (EMDEs) 
is anticipated to have increased from 5.9 per cent in 2021 to 9.9 per cent in 2022 (WEO, 
October 2022). 
119 Prices and Inflation: Successful Tight-rope Walking
Figure V .1: Record Consumer Price Inflation in 2022 Calendar Year 
1 .5
2 .7
2 .0
1 .4 1 .4
0 .3
0 .8
1 .7
2 .0
1 .4
0 .7
3 .1
7 .2
4 .4
5 .7
7 .1
5 .8
5 .5
4 .7 4 .7
4 .4
4 .5
5 .0
5 .1 5 .1
5 .9
9 .9
8 .1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Inflation Rate (per cent)
Advanced economies EMDEs
Source: World Economic Outlook, October 2022, IMF
Note: *The figure are annual averages; figures for 2022 and 2023 are projections. 
Advanced Economies include 40 economies and EMDEs include 156 economies as per IMF classification
 
Figure V .2: High Consumer Price Inflation in Advanced Economies
9.2
6.5
5.8
8.6
4
5
6
7
8
9
10
11
12
13
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22
Inflation Rate (per cent)
U.K USA Brazil Germany
 Source: OECD
5.5 The groundwork for the commendable inflation management in India was laid earlier as 
fiscal and monetary measures adopted to stave off the pandemic-induced economic woes were 
prudent and well-calibrated. India chose not to overstimulate, and hence price pressures due to 
120 Economic Survey 2022-23
the Russia-Ukraine conflict could be contained. Excessive heat in summer and uneven rainfall 
thereafter in some parts of the country affected the farm sector, reducing supply and causing 
prices of some major products to rise. India’s inflation rate peaked in April 2022 at 7.8 per cent 
before moderating to 5.7 per cent in December 2022 on the back of good monsoons as well as 
prompt government measures that ensured adequate food supply. Global economic slowdown 
and interest rate increases brought down commodity prices, contributing to a substantial decline 
in wholesale price inflation. Thus, input price pressures on Indian manufacturers abated. 
5.6 Even as inflation abated at the wholesale level, there has been a pass-through of previously 
high input costs onto retail prices. Core inflation remains sticky at nearly 6 per cent and reflects the 
second-round effects of the supply shocks witnessed earlier this year. Further, with the recovery 
of demand, there has been a pickup in service inflation. Against this backdrop, we discuss trends 
and drivers of retail and wholesale price inflation in FY22 and FY23, state-wise and rural-
urban differential in consumer inflation, fuel price inflation, CPI and WPI convergence, housing 
prices, pharmaceutical pricing and fiscal as well as monetary policy measures undertaken to 
contain inflation as the chapter proceeds.
Domestic Retail Inflation 
Headline Inflation Declined from its Peak
5.7 FY22 witnessed lower CPI-Combined (CPI-C) based retail inflation as compared to FY21. 
Even so, inflation remained on the higher side when compared to the moderation seen during the 
years prior to the pandemic. During FY22, some sub-groups such as ‘oils & fats’, ‘fuel & light’ 
and ‘transport & communication’ reported high inflation. This was mainly driven by supply 
disruptions caused by pandemic-induced lockdowns. The subsequent year (FY23) began with 
the Russia-Ukraine crisis that led to high headline inflation rate in April 2022. 
5.8 In FY23, retail inflation was mainly driven by higher food inflation, while core inflation 
stayed at a moderate level. Food inflation ranged between 4.2 per cent to 8.6 per cent between April 
and December 2022, while the core inflation rate stayed at around 6 per cent except in April 2022.
Table V .1: Average Annual Retail Inflation Based on CPI-C (per cent) (base: 2012=100)
Groups/Sub-groups Weight FY20 FY21 FY22 FY23*
Food & beverages 45.9 6.0 7.3 4.2 7.0
Cereals and products 9.7 2.8 3.8 0.5 9.3
Meat and fish 3.6 9.3 15.4 7.9 4.7
Egg 0.4 4.5 12.9 7.6 -1.0
Milk and products 6.6 2.9 5.4 2.8 6.8
Oils and fats 3.6 2.9 16.0 27.4 5.4
Fruits 2.9 0.7 2.6 6.2 4.4
Vegetables 6.0 21.3 5.8 -7.2 7.6
Pulses and products 2.4 9.9 16.4 6.0 1.8
121 Prices and Inflation: Successful Tight-rope Walking
Weight FY20 FY21 FY22 FY23*
  Sugar and confectionery 1.4 0.8 2.5 2.3 2.7
  Spices 2.5 4.4 10.9 5.3 14.9
  Pan, tobacco & intoxicants 2.4 4.2 9.9 4.5 2.0
  Clothing & footwear 6.5 1.6 3.4 7.2 9.7
  Housing 10.1 4.5 3.3 3.7 4.1
  Fuel and light 6.8 1.3 2.7 11.3 10.5
  Miscellaneous 28.3 4.4 6.6 6.7 6.3
  Household goods and services 3.8 3.1 3.0 5.8 7.5
  Health 5.9 6.2 5.1 7.5 5.8
  Transport and communication 8.6 2.4 9.9 10.1 6.4
  Recreation and amusement 1.7 4.9 5.1 6.5 6.4
  Education 4.5 5.5 2.8 2.9 5.2
  Headline Inflation 100.0 4.8 6.2 5.5 6.8
  Core Inflation 47.3 4.0 5.5 6.0 6.1
  Food Inflation 39.1 6.7 7.7 3.8 7.0
Source: MoSPI, 
Note: *April-December, CPI data for December 2022 are provisional
Figure V .3: Declining Food Inflation but Sticky Core Inflation
0
1
2
3
4
5
6
7
8
9
10
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Inflation Rate (per cent)
Headline Inflation Food Inflation Core Inflation
 Source: MoSPI