Prices and Inflation Notes | Study Economic Survey 2021 - UPSC

UPSC: Prices and Inflation Notes | Study Economic Survey 2021 - UPSC

The document Prices and Inflation Notes | Study Economic Survey 2021 - UPSC is a part of the UPSC Course Economic Survey 2021.
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 Page 1


CHAPTER
05
Prices and Inflation
CPI-Combined (C) inflation has moderated since 2013-14. However, inflation dynamics have 
changed considerably in 2020. Overall, headline CPI inflation remained high during the 
COVID-19 induced lockdown period and subsequently, due to the persistence of supply side 
disruptions. The rise in inflation was mostly driven by food inflation, which increased to 9.1 
per cent during 2020-21 (Apr-Dec). Due to COVID-19 induced disruptions, an overall increase 
in the price momentum is witnessed, driving inflation since April 2020, whereas positive base 
effect has been a moderating factor. The difference in rural-urban CPI inflation, which was 
high in 2019, saw a decline from November 2019 that continued in 2020. Inflation ranged 
between 3.2 per cent to 11 per cent across States/UTs in 2020-21 (Jun-Dec) compared to (-) 0.3 
per cent to 7.6 per cent in the same period last year. Thali prices for both vegetarian and non-
vegetarian Thalis declined significantly in January-March 2020 before rising sharply during 
April to November in both rural and urban areas before easing in December 2020. The easing 
in CPI-C is expected to ease Thali prices going forward. 
The Survey finds that sole focus on CPI-C inflation may not be appropriate for four reasons. 
First, food inflation, which contributes significantly to CPI-C is driven primarily by supply-side 
factors. Second, given its role as the headline target for monetary policy, changes in CPI-C 
anchor inflation expectations. This occurs despite inflation in CPI-C being driven by supply-
side factors that drive food inflation. Third, several components of food inflation are transitory 
with wide variations within the food and beverages group. Finally, food inflation has been 
driving overall CPI-C inflation due to the relatively higher weight of food items in  the  index.  
While  food  habits  have  undergone  revisions  over  the  decade  since  2011-12, which is 
base  year  of  CPI,  the  same is not reflected in the index yet. The base  year  of  CPI  therefore 
needs  to be revised to overcome the measurement error that may be arising from the change 
in food habits. For all these reasons, a greater focus on core inflation is warranted. Further, 
given the significant increases in e-commerce transactions, new sources of price data capturing 
e-commerce transactions must get incorporated in the construction of price indices. During 
the year, the government took several measures to make crucial drugs for COVID-19 treatment 
available at affordable prices, to stabilise prices of sensitive food items like banning of export 
of onions, imposition of stock limit on onions, easing of restriction on imports of pulses etc. 
However, consistency in import policy of sensitive food items warrants attention as frequent 
changes in import policy of pulses and edible oils adds to confusion and delays. To rein in 
the vegetable inflation, review of relevant buffer stock policies is essential. To avoid supply-
side disruptions that cause inflation seasonality in vegetables, food, CPI-C and in inflation 
expectations, a system needs to be developed to reduce wastages and ensure timely release  
of stock.
Page 2


CHAPTER
05
Prices and Inflation
CPI-Combined (C) inflation has moderated since 2013-14. However, inflation dynamics have 
changed considerably in 2020. Overall, headline CPI inflation remained high during the 
COVID-19 induced lockdown period and subsequently, due to the persistence of supply side 
disruptions. The rise in inflation was mostly driven by food inflation, which increased to 9.1 
per cent during 2020-21 (Apr-Dec). Due to COVID-19 induced disruptions, an overall increase 
in the price momentum is witnessed, driving inflation since April 2020, whereas positive base 
effect has been a moderating factor. The difference in rural-urban CPI inflation, which was 
high in 2019, saw a decline from November 2019 that continued in 2020. Inflation ranged 
between 3.2 per cent to 11 per cent across States/UTs in 2020-21 (Jun-Dec) compared to (-) 0.3 
per cent to 7.6 per cent in the same period last year. Thali prices for both vegetarian and non-
vegetarian Thalis declined significantly in January-March 2020 before rising sharply during 
April to November in both rural and urban areas before easing in December 2020. The easing 
in CPI-C is expected to ease Thali prices going forward. 
The Survey finds that sole focus on CPI-C inflation may not be appropriate for four reasons. 
First, food inflation, which contributes significantly to CPI-C is driven primarily by supply-side 
factors. Second, given its role as the headline target for monetary policy, changes in CPI-C 
anchor inflation expectations. This occurs despite inflation in CPI-C being driven by supply-
side factors that drive food inflation. Third, several components of food inflation are transitory 
with wide variations within the food and beverages group. Finally, food inflation has been 
driving overall CPI-C inflation due to the relatively higher weight of food items in  the  index.  
While  food  habits  have  undergone  revisions  over  the  decade  since  2011-12, which is 
base  year  of  CPI,  the  same is not reflected in the index yet. The base  year  of  CPI  therefore 
needs  to be revised to overcome the measurement error that may be arising from the change 
in food habits. For all these reasons, a greater focus on core inflation is warranted. Further, 
given the significant increases in e-commerce transactions, new sources of price data capturing 
e-commerce transactions must get incorporated in the construction of price indices. During 
the year, the government took several measures to make crucial drugs for COVID-19 treatment 
available at affordable prices, to stabilise prices of sensitive food items like banning of export 
of onions, imposition of stock limit on onions, easing of restriction on imports of pulses etc. 
However, consistency in import policy of sensitive food items warrants attention as frequent 
changes in import policy of pulses and edible oils adds to confusion and delays. To rein in 
the vegetable inflation, review of relevant buffer stock policies is essential. To avoid supply-
side disruptions that cause inflation seasonality in vegetables, food, CPI-C and in inflation 
expectations, a system needs to be developed to reduce wastages and ensure timely release  
of stock.
162 Economic Survey 2020-21   V olume 2
Introduct Ion 5.1 Year 2020 was unprecedented with the global pandemic of COVID-19 induced social 
distancing disrupting economic activity globally. At the domestic level, two opposing forces 
were at play. On the one hand, there was a dampening of demand owing to lower economic 
activity. On the other hand, supply chain disruptions have caused spikes in food inflation that 
have continued to persist during the unlocking of the economy, though the effect has softened 
in the recent months. Overall, headline CPI inflation remained high during the lockdown period 
and subsequently as well, due to the persistence of supply side disruptions (Table 1). At the 
global level, inflation remained benign on the back of subdued economic activity as a result 
of COVID-19 outbreak and sharp fall in international crude oil prices in advanced economies. 
In Emerging Markets and Developing Economies (EMDEs), there was slight fall in inflation 
on account of weaker economic activity, though there has been uptick in inflation in some 
economies ending at similar levels as in the previous year (IMF, 2020) (Figure 1).
Table 1: General inflation based on different price indices (in per cent)
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21*
WPI 5.2 1.2 –3.7 1.7 3.0 4.3 1.7 –0.1 (P)
CPI - C 9.4 5.9 4.9 4.5 3.6 3.4 4.8 6.6 (P)^
CPI - IW 9.8 6.4 5.6 4.2 2.9 5.6 7.3 5.5
#
CPI - AL 11.6 6.6 4.4 4.2 2.2 2.1 8.0 7.0
CPI - RL 11.5 6.9 4.6 4.2 2.3 2.2 7.7 6.8
Source: Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT) for 
Wholesale Price Index, National Statistical Office (NSO) for CPI-C and Labour Bureau for CPI-IW, CPI-AL and 
CPI-RL.
Notes: #CPI-IW inflation for 2020-21 is based on new series 2016=100; (P) - Provisional; C- stands for Combined, 
IW- stands for Industrial Workers, AL - stands for Agricultural Labourers and RL- stands for Rural Labourers.
*?April to December 2020 for WPI, CPI-C and April- November 2020 for others. 
^?CPI-C inflation for the months of April-May, 2020 are imputed, which are based on limited set of observations 
due to COVID-19 pandemic.
Figure 1: Annual Average Consumer Price Inflation in Advanced Economies and EMDEs
 Source: World Economic Outlook, October 2020 Update, IMF
 Note: *The figure for 2020 is projected by IMF
  Advanced Economies include 16 economies and EMDEs include 156 economies as per IMF 
classification
Page 3


CHAPTER
05
Prices and Inflation
CPI-Combined (C) inflation has moderated since 2013-14. However, inflation dynamics have 
changed considerably in 2020. Overall, headline CPI inflation remained high during the 
COVID-19 induced lockdown period and subsequently, due to the persistence of supply side 
disruptions. The rise in inflation was mostly driven by food inflation, which increased to 9.1 
per cent during 2020-21 (Apr-Dec). Due to COVID-19 induced disruptions, an overall increase 
in the price momentum is witnessed, driving inflation since April 2020, whereas positive base 
effect has been a moderating factor. The difference in rural-urban CPI inflation, which was 
high in 2019, saw a decline from November 2019 that continued in 2020. Inflation ranged 
between 3.2 per cent to 11 per cent across States/UTs in 2020-21 (Jun-Dec) compared to (-) 0.3 
per cent to 7.6 per cent in the same period last year. Thali prices for both vegetarian and non-
vegetarian Thalis declined significantly in January-March 2020 before rising sharply during 
April to November in both rural and urban areas before easing in December 2020. The easing 
in CPI-C is expected to ease Thali prices going forward. 
The Survey finds that sole focus on CPI-C inflation may not be appropriate for four reasons. 
First, food inflation, which contributes significantly to CPI-C is driven primarily by supply-side 
factors. Second, given its role as the headline target for monetary policy, changes in CPI-C 
anchor inflation expectations. This occurs despite inflation in CPI-C being driven by supply-
side factors that drive food inflation. Third, several components of food inflation are transitory 
with wide variations within the food and beverages group. Finally, food inflation has been 
driving overall CPI-C inflation due to the relatively higher weight of food items in  the  index.  
While  food  habits  have  undergone  revisions  over  the  decade  since  2011-12, which is 
base  year  of  CPI,  the  same is not reflected in the index yet. The base  year  of  CPI  therefore 
needs  to be revised to overcome the measurement error that may be arising from the change 
in food habits. For all these reasons, a greater focus on core inflation is warranted. Further, 
given the significant increases in e-commerce transactions, new sources of price data capturing 
e-commerce transactions must get incorporated in the construction of price indices. During 
the year, the government took several measures to make crucial drugs for COVID-19 treatment 
available at affordable prices, to stabilise prices of sensitive food items like banning of export 
of onions, imposition of stock limit on onions, easing of restriction on imports of pulses etc. 
However, consistency in import policy of sensitive food items warrants attention as frequent 
changes in import policy of pulses and edible oils adds to confusion and delays. To rein in 
the vegetable inflation, review of relevant buffer stock policies is essential. To avoid supply-
side disruptions that cause inflation seasonality in vegetables, food, CPI-C and in inflation 
expectations, a system needs to be developed to reduce wastages and ensure timely release  
of stock.
162 Economic Survey 2020-21   V olume 2
Introduct Ion 5.1 Year 2020 was unprecedented with the global pandemic of COVID-19 induced social 
distancing disrupting economic activity globally. At the domestic level, two opposing forces 
were at play. On the one hand, there was a dampening of demand owing to lower economic 
activity. On the other hand, supply chain disruptions have caused spikes in food inflation that 
have continued to persist during the unlocking of the economy, though the effect has softened 
in the recent months. Overall, headline CPI inflation remained high during the lockdown period 
and subsequently as well, due to the persistence of supply side disruptions (Table 1). At the 
global level, inflation remained benign on the back of subdued economic activity as a result 
of COVID-19 outbreak and sharp fall in international crude oil prices in advanced economies. 
In Emerging Markets and Developing Economies (EMDEs), there was slight fall in inflation 
on account of weaker economic activity, though there has been uptick in inflation in some 
economies ending at similar levels as in the previous year (IMF, 2020) (Figure 1).
Table 1: General inflation based on different price indices (in per cent)
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21*
WPI 5.2 1.2 –3.7 1.7 3.0 4.3 1.7 –0.1 (P)
CPI - C 9.4 5.9 4.9 4.5 3.6 3.4 4.8 6.6 (P)^
CPI - IW 9.8 6.4 5.6 4.2 2.9 5.6 7.3 5.5
#
CPI - AL 11.6 6.6 4.4 4.2 2.2 2.1 8.0 7.0
CPI - RL 11.5 6.9 4.6 4.2 2.3 2.2 7.7 6.8
Source: Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT) for 
Wholesale Price Index, National Statistical Office (NSO) for CPI-C and Labour Bureau for CPI-IW, CPI-AL and 
CPI-RL.
Notes: #CPI-IW inflation for 2020-21 is based on new series 2016=100; (P) - Provisional; C- stands for Combined, 
IW- stands for Industrial Workers, AL - stands for Agricultural Labourers and RL- stands for Rural Labourers.
*?April to December 2020 for WPI, CPI-C and April- November 2020 for others. 
^?CPI-C inflation for the months of April-May, 2020 are imputed, which are based on limited set of observations 
due to COVID-19 pandemic.
Figure 1: Annual Average Consumer Price Inflation in Advanced Economies and EMDEs
 Source: World Economic Outlook, October 2020 Update, IMF
 Note: *The figure for 2020 is projected by IMF
  Advanced Economies include 16 economies and EMDEs include 156 economies as per IMF 
classification
163 Prices and Inflation
CURRENT TRENDS IN INFLATION
5.2 Headline inflation based on CPI-Combined (CPI-C) was on a downward path from 2014 
to 2018. Though a rising trend was observed since 2019, a moderation in inflation is clearly 
visible now (Figure 2). The average CPI-C inflation, which was 5.9 per cent in 2014-15, fell 
continuously to 3.4 per cent in 2018-19 and recorded 4.8 per cent in 2019-20. It however 
increased to 6.6 per cent in 2020-21 (Apr-Dec) before easing to a 15-month low of 4.6 per 
cent in December 2020. Within various groups of CPI-C, the increase in inflation in the current 
year was mainly driven by rise in food inflation, which increased from 0.1 per cent in 2018-19 
to 6.7 per cent in 2019-20 and further to 9.1 per cent in 2020-21 (Apr-Dec), owing to build up 
in vegetable prices. However, the swift steps taken by the Government eased food inflation 
significantly to 3.4 per cent in December 2020 from a high of 11 per cent in October 2020. CPI 
Core (non-food non-fuel) inflation declined from 5.8 per cent in 2018-19 to 4.0 per cent in 2019-
20 and averaged 5.4 per cent in 2020-21 (Apr-Dec) (Table 2). Rise in core inflation in the current 
year is mainly on account of miscellaneous group which primarily consists of services. Inflation 
in transport & communication, which have maximum weightage in the miscellaneous group, 
increased to 9.4 per cent in the current year as compared to 2.4 per cent in 2019-20. Further, 
volatility in gold and silver prices also pushed core inflation up. However, at major group level 
of CPI-C, significant fall has been observed in housing inflation from 6.7 per cent in 2018-19 to 
4.5 per cent in 2019-20 and further to 3.3 per cent in 2020-21 (Apr-Dec). 
Figure 2: Trends in CPI-C Headline, Core and Food inflation
 Source: NSO.
Table 2: Inflation in selected groups of CPI-C Base 2012 (in per cent)
Description Weights 2018-19 2019-20 2020-21# Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 (P)
All Groups 100 3.4 4.8 6.6 6.7 6.7 7.3 7.6 6.9 4.6
CFPI* 39.06 0.1 6.7 9.1 9.3 9.1 10.7 11.0 9.5 3.4
Food & beverages 45.86 0.7 6.0 8.4 8.5 8.3 9.8 10.1 8.9 3.9
Cereals & products 9.67 2.1 2.8 5.2 6.9 5.9 4.7 3.5 2.5 1.0
Meat & fish
3.61 4.0 9.3 16.3 17.3 16.5 17.5 18.6 17.0 15.2
Egg
0.43 2.3 4.5 13.4 7.7 10.1 15.6 21.7 20.4 16.1
Page 4


CHAPTER
05
Prices and Inflation
CPI-Combined (C) inflation has moderated since 2013-14. However, inflation dynamics have 
changed considerably in 2020. Overall, headline CPI inflation remained high during the 
COVID-19 induced lockdown period and subsequently, due to the persistence of supply side 
disruptions. The rise in inflation was mostly driven by food inflation, which increased to 9.1 
per cent during 2020-21 (Apr-Dec). Due to COVID-19 induced disruptions, an overall increase 
in the price momentum is witnessed, driving inflation since April 2020, whereas positive base 
effect has been a moderating factor. The difference in rural-urban CPI inflation, which was 
high in 2019, saw a decline from November 2019 that continued in 2020. Inflation ranged 
between 3.2 per cent to 11 per cent across States/UTs in 2020-21 (Jun-Dec) compared to (-) 0.3 
per cent to 7.6 per cent in the same period last year. Thali prices for both vegetarian and non-
vegetarian Thalis declined significantly in January-March 2020 before rising sharply during 
April to November in both rural and urban areas before easing in December 2020. The easing 
in CPI-C is expected to ease Thali prices going forward. 
The Survey finds that sole focus on CPI-C inflation may not be appropriate for four reasons. 
First, food inflation, which contributes significantly to CPI-C is driven primarily by supply-side 
factors. Second, given its role as the headline target for monetary policy, changes in CPI-C 
anchor inflation expectations. This occurs despite inflation in CPI-C being driven by supply-
side factors that drive food inflation. Third, several components of food inflation are transitory 
with wide variations within the food and beverages group. Finally, food inflation has been 
driving overall CPI-C inflation due to the relatively higher weight of food items in  the  index.  
While  food  habits  have  undergone  revisions  over  the  decade  since  2011-12, which is 
base  year  of  CPI,  the  same is not reflected in the index yet. The base  year  of  CPI  therefore 
needs  to be revised to overcome the measurement error that may be arising from the change 
in food habits. For all these reasons, a greater focus on core inflation is warranted. Further, 
given the significant increases in e-commerce transactions, new sources of price data capturing 
e-commerce transactions must get incorporated in the construction of price indices. During 
the year, the government took several measures to make crucial drugs for COVID-19 treatment 
available at affordable prices, to stabilise prices of sensitive food items like banning of export 
of onions, imposition of stock limit on onions, easing of restriction on imports of pulses etc. 
However, consistency in import policy of sensitive food items warrants attention as frequent 
changes in import policy of pulses and edible oils adds to confusion and delays. To rein in 
the vegetable inflation, review of relevant buffer stock policies is essential. To avoid supply-
side disruptions that cause inflation seasonality in vegetables, food, CPI-C and in inflation 
expectations, a system needs to be developed to reduce wastages and ensure timely release  
of stock.
162 Economic Survey 2020-21   V olume 2
Introduct Ion 5.1 Year 2020 was unprecedented with the global pandemic of COVID-19 induced social 
distancing disrupting economic activity globally. At the domestic level, two opposing forces 
were at play. On the one hand, there was a dampening of demand owing to lower economic 
activity. On the other hand, supply chain disruptions have caused spikes in food inflation that 
have continued to persist during the unlocking of the economy, though the effect has softened 
in the recent months. Overall, headline CPI inflation remained high during the lockdown period 
and subsequently as well, due to the persistence of supply side disruptions (Table 1). At the 
global level, inflation remained benign on the back of subdued economic activity as a result 
of COVID-19 outbreak and sharp fall in international crude oil prices in advanced economies. 
In Emerging Markets and Developing Economies (EMDEs), there was slight fall in inflation 
on account of weaker economic activity, though there has been uptick in inflation in some 
economies ending at similar levels as in the previous year (IMF, 2020) (Figure 1).
Table 1: General inflation based on different price indices (in per cent)
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21*
WPI 5.2 1.2 –3.7 1.7 3.0 4.3 1.7 –0.1 (P)
CPI - C 9.4 5.9 4.9 4.5 3.6 3.4 4.8 6.6 (P)^
CPI - IW 9.8 6.4 5.6 4.2 2.9 5.6 7.3 5.5
#
CPI - AL 11.6 6.6 4.4 4.2 2.2 2.1 8.0 7.0
CPI - RL 11.5 6.9 4.6 4.2 2.3 2.2 7.7 6.8
Source: Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT) for 
Wholesale Price Index, National Statistical Office (NSO) for CPI-C and Labour Bureau for CPI-IW, CPI-AL and 
CPI-RL.
Notes: #CPI-IW inflation for 2020-21 is based on new series 2016=100; (P) - Provisional; C- stands for Combined, 
IW- stands for Industrial Workers, AL - stands for Agricultural Labourers and RL- stands for Rural Labourers.
*?April to December 2020 for WPI, CPI-C and April- November 2020 for others. 
^?CPI-C inflation for the months of April-May, 2020 are imputed, which are based on limited set of observations 
due to COVID-19 pandemic.
Figure 1: Annual Average Consumer Price Inflation in Advanced Economies and EMDEs
 Source: World Economic Outlook, October 2020 Update, IMF
 Note: *The figure for 2020 is projected by IMF
  Advanced Economies include 16 economies and EMDEs include 156 economies as per IMF 
classification
163 Prices and Inflation
CURRENT TRENDS IN INFLATION
5.2 Headline inflation based on CPI-Combined (CPI-C) was on a downward path from 2014 
to 2018. Though a rising trend was observed since 2019, a moderation in inflation is clearly 
visible now (Figure 2). The average CPI-C inflation, which was 5.9 per cent in 2014-15, fell 
continuously to 3.4 per cent in 2018-19 and recorded 4.8 per cent in 2019-20. It however 
increased to 6.6 per cent in 2020-21 (Apr-Dec) before easing to a 15-month low of 4.6 per 
cent in December 2020. Within various groups of CPI-C, the increase in inflation in the current 
year was mainly driven by rise in food inflation, which increased from 0.1 per cent in 2018-19 
to 6.7 per cent in 2019-20 and further to 9.1 per cent in 2020-21 (Apr-Dec), owing to build up 
in vegetable prices. However, the swift steps taken by the Government eased food inflation 
significantly to 3.4 per cent in December 2020 from a high of 11 per cent in October 2020. CPI 
Core (non-food non-fuel) inflation declined from 5.8 per cent in 2018-19 to 4.0 per cent in 2019-
20 and averaged 5.4 per cent in 2020-21 (Apr-Dec) (Table 2). Rise in core inflation in the current 
year is mainly on account of miscellaneous group which primarily consists of services. Inflation 
in transport & communication, which have maximum weightage in the miscellaneous group, 
increased to 9.4 per cent in the current year as compared to 2.4 per cent in 2019-20. Further, 
volatility in gold and silver prices also pushed core inflation up. However, at major group level 
of CPI-C, significant fall has been observed in housing inflation from 6.7 per cent in 2018-19 to 
4.5 per cent in 2019-20 and further to 3.3 per cent in 2020-21 (Apr-Dec). 
Figure 2: Trends in CPI-C Headline, Core and Food inflation
 Source: NSO.
Table 2: Inflation in selected groups of CPI-C Base 2012 (in per cent)
Description Weights 2018-19 2019-20 2020-21# Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 (P)
All Groups 100 3.4 4.8 6.6 6.7 6.7 7.3 7.6 6.9 4.6
CFPI* 39.06 0.1 6.7 9.1 9.3 9.1 10.7 11.0 9.5 3.4
Food & beverages 45.86 0.7 6.0 8.4 8.5 8.3 9.8 10.1 8.9 3.9
Cereals & products 9.67 2.1 2.8 5.2 6.9 5.9 4.7 3.5 2.5 1.0
Meat & fish
3.61 4.0 9.3 16.3 17.3 16.5 17.5 18.6 17.0 15.2
Egg
0.43 2.3 4.5 13.4 7.7 10.1 15.6 21.7 20.4 16.1
164 Economic Survey 2020-21   V olume 2
Description Weights 2018-19 2019-20 2020-21# Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 (P)
Milk & products
6.61 1.8 2.9 6.4 6.5 6.2 5.6 5.2 5.0 4.0
Oils & fats
3.56 2.1 2.9 14.0 12.2 12.4 13.4 15.2 17.9 20.0
Fruits
2.89 2.3 0.7 1.4 0.1 1.0 3.1 0.3 0.2 2.7
Vegetables
6.04 –5.2 21.3 11.0 11.1 11.5 20.8 22.1 15.5 –10.4
Pulses & products
2.38 –8.3 9.9 17.6 15.7 14.4 14.7 18.3 18.1 16.0
Sugar & confectionery
1.36 –7.0 0.8 3.5 3.6 3.9 2.7 1.5 1.0 0.5
Fuel & light
6.84 5.7 1.3 2.3 2.7 3.2 2.8 2.1 1.6 3.0
CPI Excl. Food & Fuel 
Group (Core)
47.3 5.8 4.0 5.4 5.6 5.6 5.4 5.9 5.7 5.5
Source: NSO.
Note: (P): Provisional, *Consumer Food Price Index, # April to December 2020
5.3 WPI inflation declined from 4.3 per cent in 2018-19 to 1.7 per cent in 2019-20 and further 
to (-) 0.1 per cent in 2020-21 (Apr-Dec). It remained negative from April to July 2020 and stood 
at 1.2 per cent in December 2020 (Figure 3). The decline in WPI inflation in the current year is 
mainly on account of fuel & power. Persistent volatility in the global crude oil prices during the 
year led to fall in inflation of major fuel products. WPI fuel & power inflation dropped sharply 
from 11.6 per cent in 2018-19 to (-) 1.8 per cent in 2019-20 and further to (-) 12.2 per cent in 
2020-21 (Apr-Dec). WPI food inflation declined from 6.9 per cent in 2019-20 to 4.2 per cent in 
2020-21 (Apr-Dec) and WPI core inflation increased to 0.8 per cent in 2020-21 (Apr-Dec) as 
compared to (-) 0.4 per cent in 2019-20 (Table 3).
Figure 3: Trends in WPI All commodities, Core and Food inflation
Source: Office of the Economic Adviser, DPIIT
Table 3: Inflation in selected groups of WPI- Base 2011-12 (in per cent)
Description Weight 2018–19 2019–20 2020–21# Jul–20 Aug–20 Sep–20 Oct–20
Nov–20 
(P)
d ec–20 
(P)
All commodities 100.0 4.3 1.7 –0.1 –0.2 0.4 1.3 1.3 1.6 1.2
Page 5


CHAPTER
05
Prices and Inflation
CPI-Combined (C) inflation has moderated since 2013-14. However, inflation dynamics have 
changed considerably in 2020. Overall, headline CPI inflation remained high during the 
COVID-19 induced lockdown period and subsequently, due to the persistence of supply side 
disruptions. The rise in inflation was mostly driven by food inflation, which increased to 9.1 
per cent during 2020-21 (Apr-Dec). Due to COVID-19 induced disruptions, an overall increase 
in the price momentum is witnessed, driving inflation since April 2020, whereas positive base 
effect has been a moderating factor. The difference in rural-urban CPI inflation, which was 
high in 2019, saw a decline from November 2019 that continued in 2020. Inflation ranged 
between 3.2 per cent to 11 per cent across States/UTs in 2020-21 (Jun-Dec) compared to (-) 0.3 
per cent to 7.6 per cent in the same period last year. Thali prices for both vegetarian and non-
vegetarian Thalis declined significantly in January-March 2020 before rising sharply during 
April to November in both rural and urban areas before easing in December 2020. The easing 
in CPI-C is expected to ease Thali prices going forward. 
The Survey finds that sole focus on CPI-C inflation may not be appropriate for four reasons. 
First, food inflation, which contributes significantly to CPI-C is driven primarily by supply-side 
factors. Second, given its role as the headline target for monetary policy, changes in CPI-C 
anchor inflation expectations. This occurs despite inflation in CPI-C being driven by supply-
side factors that drive food inflation. Third, several components of food inflation are transitory 
with wide variations within the food and beverages group. Finally, food inflation has been 
driving overall CPI-C inflation due to the relatively higher weight of food items in  the  index.  
While  food  habits  have  undergone  revisions  over  the  decade  since  2011-12, which is 
base  year  of  CPI,  the  same is not reflected in the index yet. The base  year  of  CPI  therefore 
needs  to be revised to overcome the measurement error that may be arising from the change 
in food habits. For all these reasons, a greater focus on core inflation is warranted. Further, 
given the significant increases in e-commerce transactions, new sources of price data capturing 
e-commerce transactions must get incorporated in the construction of price indices. During 
the year, the government took several measures to make crucial drugs for COVID-19 treatment 
available at affordable prices, to stabilise prices of sensitive food items like banning of export 
of onions, imposition of stock limit on onions, easing of restriction on imports of pulses etc. 
However, consistency in import policy of sensitive food items warrants attention as frequent 
changes in import policy of pulses and edible oils adds to confusion and delays. To rein in 
the vegetable inflation, review of relevant buffer stock policies is essential. To avoid supply-
side disruptions that cause inflation seasonality in vegetables, food, CPI-C and in inflation 
expectations, a system needs to be developed to reduce wastages and ensure timely release  
of stock.
162 Economic Survey 2020-21   V olume 2
Introduct Ion 5.1 Year 2020 was unprecedented with the global pandemic of COVID-19 induced social 
distancing disrupting economic activity globally. At the domestic level, two opposing forces 
were at play. On the one hand, there was a dampening of demand owing to lower economic 
activity. On the other hand, supply chain disruptions have caused spikes in food inflation that 
have continued to persist during the unlocking of the economy, though the effect has softened 
in the recent months. Overall, headline CPI inflation remained high during the lockdown period 
and subsequently as well, due to the persistence of supply side disruptions (Table 1). At the 
global level, inflation remained benign on the back of subdued economic activity as a result 
of COVID-19 outbreak and sharp fall in international crude oil prices in advanced economies. 
In Emerging Markets and Developing Economies (EMDEs), there was slight fall in inflation 
on account of weaker economic activity, though there has been uptick in inflation in some 
economies ending at similar levels as in the previous year (IMF, 2020) (Figure 1).
Table 1: General inflation based on different price indices (in per cent)
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21*
WPI 5.2 1.2 –3.7 1.7 3.0 4.3 1.7 –0.1 (P)
CPI - C 9.4 5.9 4.9 4.5 3.6 3.4 4.8 6.6 (P)^
CPI - IW 9.8 6.4 5.6 4.2 2.9 5.6 7.3 5.5
#
CPI - AL 11.6 6.6 4.4 4.2 2.2 2.1 8.0 7.0
CPI - RL 11.5 6.9 4.6 4.2 2.3 2.2 7.7 6.8
Source: Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT) for 
Wholesale Price Index, National Statistical Office (NSO) for CPI-C and Labour Bureau for CPI-IW, CPI-AL and 
CPI-RL.
Notes: #CPI-IW inflation for 2020-21 is based on new series 2016=100; (P) - Provisional; C- stands for Combined, 
IW- stands for Industrial Workers, AL - stands for Agricultural Labourers and RL- stands for Rural Labourers.
*?April to December 2020 for WPI, CPI-C and April- November 2020 for others. 
^?CPI-C inflation for the months of April-May, 2020 are imputed, which are based on limited set of observations 
due to COVID-19 pandemic.
Figure 1: Annual Average Consumer Price Inflation in Advanced Economies and EMDEs
 Source: World Economic Outlook, October 2020 Update, IMF
 Note: *The figure for 2020 is projected by IMF
  Advanced Economies include 16 economies and EMDEs include 156 economies as per IMF 
classification
163 Prices and Inflation
CURRENT TRENDS IN INFLATION
5.2 Headline inflation based on CPI-Combined (CPI-C) was on a downward path from 2014 
to 2018. Though a rising trend was observed since 2019, a moderation in inflation is clearly 
visible now (Figure 2). The average CPI-C inflation, which was 5.9 per cent in 2014-15, fell 
continuously to 3.4 per cent in 2018-19 and recorded 4.8 per cent in 2019-20. It however 
increased to 6.6 per cent in 2020-21 (Apr-Dec) before easing to a 15-month low of 4.6 per 
cent in December 2020. Within various groups of CPI-C, the increase in inflation in the current 
year was mainly driven by rise in food inflation, which increased from 0.1 per cent in 2018-19 
to 6.7 per cent in 2019-20 and further to 9.1 per cent in 2020-21 (Apr-Dec), owing to build up 
in vegetable prices. However, the swift steps taken by the Government eased food inflation 
significantly to 3.4 per cent in December 2020 from a high of 11 per cent in October 2020. CPI 
Core (non-food non-fuel) inflation declined from 5.8 per cent in 2018-19 to 4.0 per cent in 2019-
20 and averaged 5.4 per cent in 2020-21 (Apr-Dec) (Table 2). Rise in core inflation in the current 
year is mainly on account of miscellaneous group which primarily consists of services. Inflation 
in transport & communication, which have maximum weightage in the miscellaneous group, 
increased to 9.4 per cent in the current year as compared to 2.4 per cent in 2019-20. Further, 
volatility in gold and silver prices also pushed core inflation up. However, at major group level 
of CPI-C, significant fall has been observed in housing inflation from 6.7 per cent in 2018-19 to 
4.5 per cent in 2019-20 and further to 3.3 per cent in 2020-21 (Apr-Dec). 
Figure 2: Trends in CPI-C Headline, Core and Food inflation
 Source: NSO.
Table 2: Inflation in selected groups of CPI-C Base 2012 (in per cent)
Description Weights 2018-19 2019-20 2020-21# Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 (P)
All Groups 100 3.4 4.8 6.6 6.7 6.7 7.3 7.6 6.9 4.6
CFPI* 39.06 0.1 6.7 9.1 9.3 9.1 10.7 11.0 9.5 3.4
Food & beverages 45.86 0.7 6.0 8.4 8.5 8.3 9.8 10.1 8.9 3.9
Cereals & products 9.67 2.1 2.8 5.2 6.9 5.9 4.7 3.5 2.5 1.0
Meat & fish
3.61 4.0 9.3 16.3 17.3 16.5 17.5 18.6 17.0 15.2
Egg
0.43 2.3 4.5 13.4 7.7 10.1 15.6 21.7 20.4 16.1
164 Economic Survey 2020-21   V olume 2
Description Weights 2018-19 2019-20 2020-21# Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 (P)
Milk & products
6.61 1.8 2.9 6.4 6.5 6.2 5.6 5.2 5.0 4.0
Oils & fats
3.56 2.1 2.9 14.0 12.2 12.4 13.4 15.2 17.9 20.0
Fruits
2.89 2.3 0.7 1.4 0.1 1.0 3.1 0.3 0.2 2.7
Vegetables
6.04 –5.2 21.3 11.0 11.1 11.5 20.8 22.1 15.5 –10.4
Pulses & products
2.38 –8.3 9.9 17.6 15.7 14.4 14.7 18.3 18.1 16.0
Sugar & confectionery
1.36 –7.0 0.8 3.5 3.6 3.9 2.7 1.5 1.0 0.5
Fuel & light
6.84 5.7 1.3 2.3 2.7 3.2 2.8 2.1 1.6 3.0
CPI Excl. Food & Fuel 
Group (Core)
47.3 5.8 4.0 5.4 5.6 5.6 5.4 5.9 5.7 5.5
Source: NSO.
Note: (P): Provisional, *Consumer Food Price Index, # April to December 2020
5.3 WPI inflation declined from 4.3 per cent in 2018-19 to 1.7 per cent in 2019-20 and further 
to (-) 0.1 per cent in 2020-21 (Apr-Dec). It remained negative from April to July 2020 and stood 
at 1.2 per cent in December 2020 (Figure 3). The decline in WPI inflation in the current year is 
mainly on account of fuel & power. Persistent volatility in the global crude oil prices during the 
year led to fall in inflation of major fuel products. WPI fuel & power inflation dropped sharply 
from 11.6 per cent in 2018-19 to (-) 1.8 per cent in 2019-20 and further to (-) 12.2 per cent in 
2020-21 (Apr-Dec). WPI food inflation declined from 6.9 per cent in 2019-20 to 4.2 per cent in 
2020-21 (Apr-Dec) and WPI core inflation increased to 0.8 per cent in 2020-21 (Apr-Dec) as 
compared to (-) 0.4 per cent in 2019-20 (Table 3).
Figure 3: Trends in WPI All commodities, Core and Food inflation
Source: Office of the Economic Adviser, DPIIT
Table 3: Inflation in selected groups of WPI- Base 2011-12 (in per cent)
Description Weight 2018–19 2019–20 2020–21# Jul–20 Aug–20 Sep–20 Oct–20
Nov–20 
(P)
d ec–20 
(P)
All commodities 100.0 4.3 1.7 –0.1 –0.2 0.4 1.3 1.3 1.6 1.2
165 Prices and Inflation
Description Weight 2018-19 2019-20 2020-21# Jul-20 Aug-20 Sep-20 Oct-20
Nov-20 
(P)
d ec-20 
(P)
Food Index 24.4 0.6 6.9 4.2 4.7 4.8 7.2 6.2 4.3 0.9
Food articles 15.3 0.3 8.4 3.9 4.5 4.4 8.4 7.1 3.9 –1.1
Cereals 2.8 5.5 7.5 –1.4 0.7 –1.6 –3.7 –5.2 –5.5 –6.5
Pulses 0.6 –9.4 15.9 12.1 10.2 9.9 12.5 16.1 13.0 9.7
Vegetables 1.9 –8.4 31.2 7.1 8.2 7.2 38.1 26.7 12.2 –13.2
Fruits 1.6 –1.7 3.2 –1.3 –3.0 –0.3 –4.6 –4.3 –3.8 1.4
Milk 4.4 2.4 2.5 5.1 4.7 4.4 5.6 5.7 5.5 3.9
Egg, meat & fish 2.4 1.7 6.5 3.4 5.3 6.2 4.1 4.2 0.6 1.4
Food products 9.1 0.9 4.1 5.0 5.0 5.5 4.9 4.4 4.9 4.9
Vegetable and 
animal oils and fats
2.6 7.5 1.4 17.3 15.9 17.7 18.7 20.6 23.2 21.8
Sugar 1.1 –10.7 3.9 0.1 3.3 0.5 –0.8 –1.5 –0.8 –0.3
Fuel & power 13.2 11.6 –1.8 –12.2 –9.8 –9.1 –8.6 –11.1 –9.9 –8.7
Non–Food 
manufactured 
products (Core)
55.1 4.2 –0.4 0.8 –0.2 0.6 1.3 1.8 2.6 4.1
Source: Office of the Economic Adviser, DPIIT.
Note: P: Provisional, #April to December 2020.
5.4 The rural-urban difference in CPI inflation, which was high in 2019, saw a decline in 2020. 
From July 2018 to December 2019, CPI-Urban inflation was consistently above CPI-Rural 
inflation, mainly on account of the differential rates of food inflation between rural and urban 
areas witnessed during this period. However, in the current year, CPI-Urban inflation has moved 
closely with CPI-Rural inflation (Figure 4). Although food inflation in rural and urban areas 
has almost converged now (Figure 5), divergence in rural-urban inflation is observed in other 
components of CPI (Figure 6). Inflation in non-food components of CPI is higher in urban areas 
as compared to rural areas in the current year. While fuel & light inflation is (-) 0.1 per cent in 
rural areas, it is 6.7 per cent in urban areas. The rural-urban differential in other components is in 
the range of 1.6 to 2.3 percentage points, except housing, which is not compiled for rural areas.
Figure 4: CPI Rural and Urban inflation
 Source: NSO.
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