Worried about rising prices? Here's what inflation trends are ahead of Union Budget

India's inflation, primarily driven by rising food prices due to extreme weather patterns is likely to be a key focus for the Union Budget 2024.

What is inflation?

Inflation refers to the gradual increase in prices of goods and services in a country due to the decrease in value of money in the economy. This decrease in value is linked to how much money is circulating in the economy.

Food inflation is the primary driver of inflation in India. (PTI)

In India, inflation is measured by using the Consumer Price Index (CPI) and it is published monthly by the The National Statistical Office (NSO).

How has India’s inflation been over the years?

India’s inflation for the year 2023 was 4.38%, which was lower than 6.65% in 2022. The inflation rate of India has seen a continuous fall from the high of 9.38% in 2013 to a low of of 3.41% in 2018, post which the COVID-19 pandemic arrived.

2019 therefore, saw the inflation rate increasing to 4.77% and it shot up to 6.17% in 2020. It has since, calmed down, reaching 5.51% in 2021,before rising briefly to 6.65% in 2022 and dropping to 4.38% in 2023.

Till May, the average inflation rate for 2024 was 4.83% so far.

What is India’s inflation target for 2024-25?

The Reserve Bank of India’s (RBI) inflation target for this year is 4%, with a margin of 2% on either side.

What is the primary cause of inflation in India?

Food inflation is the primary driver of inflation in India.

India's CPI in May 2024 rose to 4.75% compared to 4.31% in May 2023.

Meanwhile, the Consumer Food Price Index for May 2024 was 8.69% compared to just 2.96% in May 2023.

This was primarily driven by increasing vegetable prices such as those of tomatoes, onions, and potatoes, which was a result of extreme weather including both heatwaves and floods.

How is the CPI calculated in India?

CPI is calculated using the price data of 299 items which are classified into 6 main groups of varying weights.

These items include:

Food and Beverages: This includes vegetables, cereals, pulses, and milk, and at 45.86%, it holds the most weightage of the CPI basket. This is because food and beverages are the prime and basic necessity of sustenance.

Miscellaneous: Holding 28.31% of the weightage, this category includes services like education, healthcare,and transport. It also includes personal care products.

Housing: This has a weightage of 10.07% and it showcases costs of housing, such as rent, maintenance, and utilities.

Fuel and Light: At 6.84% weightage, this includes expenses related to fuel, electricity, and other forms of energy used for lighting and heating.

Clothing and Footwear: The 6.53% weightage of this category Includes costs of clothing items and footwear purchased by people.

Pan, Tobacco, and Intoxicants: This section includes products such as tobacco and beverages like alcohol, and therefore, has the lowest weightage of 2.38% in the CPI basket.