Difficult Word/ Phrase | Contextual Sense |
Erode | Deteriorate |
Propel | Give an incentive for action |
Elevate | Increased in amount or degree |
Monetary tightening | Tightening of monetary policy is implemented when the inflation is rising rapidly |
Deflation | A contraction of economic activity resulting in a decline of prices |
Log | to keep an official written record of something |
Hover | stay at more or less that level and does not change much |
Disconcerting | Causing an emotional disturbance |
Perception | A way of conceiving something |
Peg | Stabilize (the price of a commodity or an exchange rate) by legislation or market operations |
Cut out | Form and create by cutting out |
Base boost: On inflation and the consumer
Inflation should not be allowed to erode (deteriorate) the purchasing power of the poor
The pace of retail inflation slowed to a 25-month low of 4.25% in May, propelled (Give an incentive for action) largely by the elevated (Increased in amount or degree) level of year-on-year price gains in May 2022, when the month’s print had exceeded 7%. Headline inflation extended its decelerating trend for a fourth month, in some measure validating the Reserve Bank of India (RBI)’s decision to pause monetary tightening (Tightening of monetary policy is implemented when the inflation is rising rapidly) till it could assess the impact of past interest rate increases. Still, month-on-month, the provisional Consumer Price Index (CPI) showed price gains at 0.51% in May, unchanged in pace from April’s six-month high sequential inflation reading. A key contributor to the deceleration in year-on-year price gains in May was the inflation in food items, which slowed by 93 basis points to 2.91%. Oils and fats contributed to the easing in food item prices, posting a 16% deflation (A contraction of economic activity resulting in a decline of prices). A continuing deflation in the cereals and products category, which has an almost 10% weight in the CPI, also helped. Cereals inflation eased by more than 100 basis points from April’s print to 12.7%. The risk of reading too much into the year-on-year moderation in inflation was, however, most evident in the food and beverages group that accounts for 46% of the CPI, with nine of its 12 sub-groups witnessing sequential increases in price levels.
Crucial food items including vegetables and the key protein sources of milk, meat and pulses all posted appreciable quickening in prices from a month earlier. Vegetable prices, which deflated 8.2% from the year-earlier levels, logged (to keep an official written record of something) 3.35% sequential inflation, a pace that was almost twice April’s 1.7% month-on-month gains. Milk and dairy, and pulses are the other food categories of concern. While year-on-year inflation in milk hovered (stay at more or less that level and does not change much) close to the 9% level in May, sequentially too the reading was at a three-month high at 0.67%. Prices of pulses, the primary protein source in vegetarian consumers’ diets, have also been rising at a disconcerting (Causing an emotional disturbance) clip, with the year-on-year rate quickening by 128 basis points to a 31-month high of 6.56%. Sequentially, the category that includes lentils such as tur and urad dal, posted 1.21% inflation. Acknowledging the sensitivity of dal prices, especially when key State elections are due, the Centre, on June 2, imposed limits on the holding of stocks of urad and tur till October 31. With households’ perception (A way of conceiving something) of current inflation found to be running at 8.8%, and three-month and year-ahead forecasts pegging (Stabilize (the price of a commodity or an exchange rate) by legislation or market operations) price gains at more than 10% in the May round of the RBI’s inflation expectations survey, policymakers have their task cut out (Form and create by cutting out ) to convince consumers that inflation will be tamed so as to not erode their purchasing power and savings.
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