Retail Inflation

Why in News? Retail inflation in India dropped to a nearly six-year low of 3.16% in April 2025, driven by falling prices of vegetables, fruits, pulses, and protein-rich items like chicken.

Relevance : UPSC Pre &  Mains

Prelims : Inflation/CPI/WPI

Mains :   GS 3-Economy

Key Points:

Inflation Data (April 2025):

CPI Inflation: 3.16% (down from 3.34% in March 2025, 4.83% in April 2024).

Food Inflation: 1.78% (lowest since October 2021, down from 2.69% in March 2025).

Deflation in Key Items:

• Potato: -12.7%
• Tomato: -33.21%
• Chicken: -6.78%
• Arhar (Pigeon Pea): -14.27%
• Jeera (Cumin): -20.79%

Rural vs. Urban:

• Rural: 2.92% (down from 3.25% in March).
• Urban: 3.36% (down from 3.43% in March).

State Variations:

• Highest: Kerala (5.94%).
• Lowest: Telangana (1.26%).

RBI’s Monetary Policy Outlook:

1. • RBI’s mandate: Maintain inflation at 4% (±2%).
   • Recent actions: 50 bps rate cuts in February and April 2025.
   • Potential: 25 bps cuts in June, August, and October 2025.
   • Inflation Projections (FY 2025-26):

Sectoral Trends:

1. • Fuel and Light: Inflation rose to 2.92% (from 1.42% in March).
   • Transport and Communication: Inflation increased to 3.73% (from 3.36% in March).

What is Inflation?

Inflation is the rate at which the general level of prices for goods and services in an economy increases over time. When inflation occurs, each unit of currency buys fewer goods and services, reducing purchasing power. It is typically measured by indices like the Consumer Price Index (CPI) or Wholesale Price Index (WPI).

Types of Inflation:

Based on Rate/Speed:

Creeping Inflation: Low and gradual price increases (1-3% annually). Considered manageable and often beneficial for economic growth.

Walking Inflation: Moderate inflation (3-10% annually). Can start affecting purchasing power but is still controllable.

Galloping Inflation: High inflation (10-20% or more annually). Disrupts economic stability, erodes savings, and requires strong policy measures.

Hyperinflation: Extremely high and uncontrollable inflation (e.g., 50%+ per month). Leads to a collapse in currency value and economic chaos (e.g., Zimbabwe in 2008).

Based on Causes:

Demand-Pull Inflation: Occurs when demand for goods and services exceeds supply, driving up prices (e.g., increased consumer spending during economic booms).

Cost-Push Inflation: Results from rising production costs (e.g., higher wages, raw material prices, or fuel costs), which are passed on to consumers. The news mentions rising fuel and light inflation (2.92% in April 2025) as a factor.

Built-In Inflation: Driven by adaptive expectations, where workers demand higher wages to keep up with rising prices, creating a wage-price spiral.

 Based on Measurement:

Consumer Price Inflation (CPI): Measures price changes in a basket of goods and services consumed by households (e.g., food, fuel, transport). The news highlights CPI at 3.16% in April 2025.

Wholesale Price Inflation (WPI): Tracks price changes at the wholesale level for goods (e.g., raw materials, intermediates).

Producer Price Inflation (PPI): Reflects price changes faced by producers for goods and services.

Based on Economic Impact:

Core Inflation: Excludes volatile items like food and fuel to measure underlying inflation trends. Useful for long-term policy decisions.

Headline Inflation: Includes all items in the CPI basket, including food and fuel, as reported in the news (3.16% in April 2025).

Stagflation: High inflation combined with stagnant economic growth and high unemployment. Rare but challenging (e.g., 1970s oil crisis).

Deflation: Negative inflation, where prices decrease. The news notes deflation in specific items like tomatoes (-33.21%) and potatoes (-12.7%).

Disinflation: A slowdown in the inflation rate (e.g., inflation dropping from 3.34% in March to 3.16% in April 2025).