The Hindu Editorial Analysis- 30th June 2023 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Spiralling food prices

Why in News?

Indian households find themselves yet again struggling to cope with a sharp surge in the prices of essential kitchen staples — ranging from tomatoes, onions and potatoes to tur dal and rice. Tomato prices have more than doubled month-on-month with the all-India average retail price as on June 29 soaring to ₹53.59 a kilogram, from ₹24.37 on May 29, data from the Consumer Affairs Department’s Price Monitoring Division show.

What is Retail Inflation?

• Retail Inflation:
  • Retail inflation, also known as Consumer Price Index (CPI) inflation, is the rate at which the prices of goods and services that consumers buy for personal use increase over time.
  • It measures the change in the cost of a basket of goods and services that are typically purchased by households, including food, clothing, housing, transportation, and medical care.
• Four types of CPI are as follows:
  • CPI for Industrial Workers (IW).
  • CPI for Agricultural Labourer (AL).
  • CPI for Rural Labourer (RL).
  • CPI for Urban Non-Manual Employees (UNME).
  • Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.
• Base Year for CPI is 2012.
  • In 2020, the Ministry of Labour and Employment released the new series of Consumer Price Index for Industrial Worker (CPI-IW) with base year 2016.
  • The Monetary Policy Committee (MPC) uses CPI data to control inflation. In April 2014, the RBI adopted the CPI as its key measure of inflation.

What is the Need for Monitoring Inflation in the Economy?

• Price Stability:
  • Inflation erodes the value of money, which makes it harder for people to plan their finances and can lead to economic instability.
  • By monitoring inflation, policymakers can take steps to maintain price stability, which promotes economic growth and stability.
• Consumer and Business Confidence:
  • When inflation is low and stable, it provides consumers and businesses with confidence in the economy, encouraging them to spend and invest.
• Interest Rates:
  • Inflation affects interest rates, which in turn affects borrowing and lending decisions, investment decisions, and overall economic growth.
  • By monitoring inflation, policymakers can adjust interest rates to ensure that the economy is growing sustainably.
• International Competitiveness:
  • High inflation rates can make a country's exports more expensive, which can reduce its international competitiveness.
  • Monitoring inflation can help policymakers keep inflation in check, which can support a country's economic competitiveness.

What is the Wholesale Price Index?

• It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• It is the most widely used inflation indicator in India.
• Major criticism for this index is that the general public does not buy products at wholesale price.