Prices and Inflation:
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The average headline Consumer Price Index (CPI) -Combined inflation moderated to 5.2% in 2021-22 (April-December) from 6.6% in the corresponding period of 2020-21.
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The decline in retail inflation (CPI) was led by easing food inflation. Food inflation averaged at a low of 2.9% in 2021-22 (April to December) as against 9.1% in the corresponding period last year.
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Effective supply-side management kept prices of most essential commodities under control during the year. Proactive measures were taken to contain the price rise in pulses and edible oils.
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Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.
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Wholesale inflation based on Wholesale Price Index (WPI) rose to 12.5% during 2021-22 (April to December). This has been attributed to:
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Low base in the previous year,
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Pick-up in economic activity,
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Sharp increase in international prices of crude oil and other imported inputs, and
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High freight costs.
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Divergence between CPI-C and WPI Inflation: The divergence peaked to 9.6% points in May 2020. However in 2021 there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0% points in December 2021. This divergence can be explained by factors such as:
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Variations due to base effect,
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Difference in scope and coverage of the two indices,
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Price collections,
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Items covered,
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Difference in commodity weights, and
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WPI being more sensitive to cost-push inflation led by imported inputs.
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With the gradual waning of base effect in WPI, the divergence in CPI-C and WPI is also expected to narrow down.